As Filed with the Securities and Exchange Commission on October 1, 1997
File No.811-07860
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT
UNDER
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 6
THE DIVERSIFIED PORTFOLIO
(Exact Name of Registrant as Specified in Charter)
P.O. Box 2508 GT, George Town, Grand Cayman, Cayman Islands, BWI
(Address of Principal Executive Offices)
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Registrant's Telephone Number, Including Area Code: (345) 949-6644
John E. Pelletier, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: Steven K. West, Esq.
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
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EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant
to Section 8(b) of the Investment Company Act of 1940, as amended. However,
beneficial interests in the Registrant are not being registered under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act.
Investments in the Registrant may only be made by other investment companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to sell, or the solicitation of an offer to buy, any beneficial
interests in the Registrant.
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PART A
Responses to Items 1 through 3 and 5A have been omitted pursuant to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT.
The Diversified Portfolio (the "Portfolio") is a no-load diversified
open-end management investment company which was organized as a trust under the
laws of the State of New York on January 29, 1993. Beneficial interests in the
Portfolio are issued solely in private placement transactions that do not
involve any "public offering" within the meaning of Section 4(2) of the
Securities Act of 1933, as amended (the "1933 Act"). Investments in the
Portfolio may only be made by other investment companies, insurance company
separate accounts, common or commingled trust funds or similar organizations or
entities that are "accredited investors" within the meaning of Regulation D
under the 1933 Act. This Registration Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security" within the meaning
of the 1933 Act.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
Investments in the Portfolio are not deposits or obligations of, or
guaranteed or endorsed by, Morgan or any other bank. Interests in the Portfolio
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other governmental agency. An investment in the
Portfolio is subject to risk, as the net asset value of the Portfolio will
fluctuate with changes in the value of the Portfolio's holdings. There can be no
assurance that the investment objective of the Portfolio will be achieved.
Part B contains more detailed information about the Portfolio,
including information related to (I) the investment policies and restrictions of
the Portfolio, (ii) the Trustees, officers, Advisor and administrators of the
Portfolio, (iii) portfolio transactions, (iv) rights and liabilities of
investors, and (v) the audited financial statements of the Portfolio at June 30,
1997.
The investment objective of the Portfolio is described below, together
with the policies employed to attempt to achieve this objective. Additional
information about the investment policies of the Portfolio appears in Part B,
under Item 13.
The Portfolio's investment objective is to provide a high total return
from a diversified portfolio of equity and fixed income securities. Total return
will consist of income plus realized and unrealized capital gains and losses.
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The Portfolio is designed primarily for investors who are pursuing a
long-term goal; want an investment with the potential to outpace inflation; seek
less risk than a fund investing completely in stocks and prefer to leave asset
allocation decisions in the hands of an investment professional. The Portfolio
is not for investors who are looking for the higher long-term potential growth
(with the higher risks) of a fund investing completely in stocks; require
regular income or stability of principal; or are pursuing a short-term goal or
investing emergency reserves.
Drawing on a variety of analytical tools, the portfolio management team
allocates assets among various types of stock and bond investments. The Advisor
expects that the model allocation of the Portfolio will be 52% in equity
securities of large and medium sized companies, 3% in small-cap U.S. stocks, 10%
in foreign issuers and 35% in U.S. and foreign bonds. The team periodically
adjusts the Portfolio's actual asset allocation according to the relative
attractiveness of each asset class.
Within this asset allocation framework, the team selects the Portfolio's
securities. With the stock portion of the portfolio, the Portfolio keeps its
economic sector weightings in line with the markets in which it invests, while
actively seeking the most attractive stocks within each sector. In choosing
individual stocks, the team ranks them according to their relative value using a
proprietary model that incorporates research from J.P. Morgan's worldwide
network of analysts. Foreign stocks are chosen using a similar process, while
also considering country allocation and currency exposure.
With the bond portion of the Portfolio, the team uses fundamental,
economic, and capital markets research to select securities. The team actively
manages the mix of U.S. and foreign bonds while typically keeping duration--a
common measurement of sensitivity to interest rate movements-- within one year
of the average for the U.S. investment-grade bond universe (currently about five
years).
POTENTIAL RISKS AND REWARDS
The value of investment in the Portfolio will fluctuate in response to
movements in the stock and bond markets. The Portfolio's broad diversification
among asset classes and among individual stocks and bonds is more effective in
reducing volatility when asset classes perform differently. Portfolio
performance will also depend on the management team's asset allocation and
securities selection.
Over the long term, investors can anticipate that the Portfolio's total
return and volatility should exceed those of bonds but remain less than those of
medium- and large-capitalization domestic stocks.
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The potential risks of the Portfolio are as follows:
With respect to market conditions, the Portfolio's share price and
performance will fluctuate in response to stock and bond market movements. The
value of the Portfolio's bonds (and potentially its convertible securities and
stocks) could fall when interest rates rise; the longer a bond's duration and
the lower its credit quality, the more its value typically falls. The
Portfolio's mortgage-backed and asset-backed securities could generate capital
losses or periods of low yields if they are paid off substantially earlier or
later than anticipated.
With respect to management choices, the Portfolio could under perform its
benchmark due to its asset allocation and securities choices.
With respect to credit quality, the default of an issuer would leave the
Portfolio with unpaid interest or principal. Junk bonds (those rated BB/Ba or
lower) have a higher risk of default.
With respect to foreign investments, currency exchange rate movements
could reduce gains or create losses. The Portfolio could lose money because of
foreign government actions, political instability, or lack of adequate and
accurate information.
Derivatives such as futures, options, and foreign currency forward
contracts that are used for hedging the Portfolio or specific securities may not
fully offset the underlying positions. Derivatives used for risk management may
not have the intended effects and may result in losses or missed opportunities.
Derivatives that involve leverage could magnify losses.
With respect to illiquid holdings, the Portfolio could have difficulty
valuing these holdings precisely. The portfolio could be unable to sell these
holdings at the time or price it desired.
With respect to when-issued and delayed delivery securities, when the
Portfolio buys securities before issue or for delayed delivery, it could be
exposed to leverage risk if it does not use segregated accounts.
With respect to short-term trading, increased trading would raise the
Portfolio's brokerage and related costs. Increased short-term capital gains
distributions would raise shareholders' income tax liability.
The potential rewards of the Portfolio are as follows:
With respect to market conditions, stocks and bonds have generally
outperformed more stable investments (such as short-term bonds and cash
equivalents) over the long term. A diversified, balanced portfolio should
mitigate the effects of wide market fluctuations, especially when stock and bond
prices move in different directions. The Portfolio's bonds could rise in value
when interest rates fall. And finally, mortgage-backed and asset- backed
securities can offer attractive returns.
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With respect to management choices, the Portfolio could outperform its
benchmark due to these same choices.
With respect to credit quality, investment-grade bonds have a lower
risk of default. Junk bonds offer higher yields and potential gains.
With respect to foreign investments, favorable exchange rate movements
could generate gains or reduce losses. Foreign investments, which represent a
major portion of the world's securities, offer attractive potential performance
and opportunities for diversification.
With respect to derivatives, hedges that correlate well with underlying
positions can reduce or eliminate losses at low cost. The Portfolio could make
money and protect against losses if management's analysis proves correct.
Derivatives that involve leverage could generate substantial gains at low cost.
With respect to illiquid holdings, these holdings may offer more
attractive yields or potential growth than comparable widely traded securities.
With respect to when-issued and delayed delivery securities, the
Portfolio can take advantage of attractive transaction opportunities.
With respect to Short-term trading, the Portfolio could realize gains
in a short period of time. The Portfolio could also protect against losses if a
stock is overvalued and its value later falls.
The policies to balance risk and reward are as follows:
With respect to market conditions, under normal circumstances the
portfolio plans to remain fully invested, with approximately 65% in stocks and
35% in bonds; stock investments may include U.S. and foreign convertible
securities, preferred stocks, trust or partnership interests, warrants, rights,
and investment company securities; bond investments may include U.S. and foreign
corporate and government bonds, and mortgage-backed and asset- backed securities
(securities representing an interest in, or secured by, a pool of mortgages or
other assets such as receivables). The Portfolio seeks to limit risk through
diversification in a large number of stocks, and to a lesser extent bonds
(typically holding more than 1,000 stock and bond positions). The Portfolio
seeks to keep the average duration of its bond portfolio within one year of that
for the U.S. investment-grade bond universe. The Portfolio monitors interest
rate trends, as well as geographic and demographic information related to
mortgage-backed securities and mortgage prepayments. During severe market
downturns, the Portfolio has the option of investing up to 100% of assets in
investment-grade short-term securities.
With respect to management choices, J.P. Morgan focuses its active
management on asset allocation and securities selection, areas where it believes
its research advantage can enhance returns.
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With respect to credit quality, at least 75% of the Portfolio's bonds must
be investment-grade (BBB/Baa quality or better), of which 65% must be A or
better must be, and no more than 25% BB/Ba or B; the Portfolio may include
unrated bonds of equivalent quality in these categories. The Portfolio does not
buy bonds lower than B.
The Portfolio anticipates that total foreign investments will not
exceed 30% of assets. The Portfolio actively manages the currency exposure of
its foreign stock and bond investments relative to its benchmark, and may hedge
into the U.S. dollar from time to time (see also "Derivatives").
The Portfolio uses derivatives, such as futures, options, and foreign
currency forward contracts, for hedging and for risk management (i.e., to adjust
duration or to establish or adjust exposure to particular securities, markets or
currencies); risk management may include management of the portfolio's exposure
relative to its benchmark. The Portfolio only establishes hedges that it expects
will be highly correlated with underlying positions. While the Portfolio may use
derivatives that incidentally involve leverage, it does not use them for the
specific purposes of leveraging the Portfolio.
With respect to illiquid holdings, the Portfolio may not invest more
than 15% of net assets in illiquid holdings. To maintain adequate liquidity, the
Portfolio may hold investment grade short-term securities (including repurchase
agreements) and, for temporary or extraordinary purposes, may borrow from banks
up to 30% of the value of its total assets.
With respect to when-issued and delayed delivery securities, the
Portfolio uses segregated accounts to cover any leverage risk.
With respect to Short-term trading, the Portfolio anticipates a
portfolio turnover rate of approximately 150%. The Portfolio generally avoids
short-term trading, except to take advantage of attractive or unexpected
opportunities or to meet demands generated by shareholder activity.
For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment restrictions, see Item 13 in
Part B.
ITEM 5. MANAGEMENT OF THE PORTFOLIO.
The Board of Trustees provides broad supervision over the affairs of
the Portfolio. The Portfolio has retained the services of Morgan as investment
adviser and administrative services agent. The Portfolio has retained the
services of Funds Distributor, Inc. ("FDI") as co-administrator (the
"Co-Administrator").
The Portfolio has not retained the services of a principal underwriter
or distributor, since interests in the Portfolio are offered solely in private
placement transactions. FDI, acting as agent for the Portfolio, serves as
exclusive placement agent of interests in the Portfolio. FDI receives no
additional compensation for serving in this capacity.
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The Portfolio has entered into an Amended and Restated Portfolio Fund
Services Agreement, dated July 11, 1996, with Pierpont Group, Inc. ("Pierpont
Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio. The fees to be paid under the agreement
approximate the reasonable cost of Pierpont Group in providing these services to
the Portfolio and other registered investment companies subject to similar
agreements with Pierpont Group. Pierpont Group was organized in 1989 at the
request of the Trustees of The Pierpont Family of Funds for the purpose of
providing these services at cost to those funds. See Item 14 in Part B. The
principal offices of Pierpont Group are located at 461 Fifth Avenue, New York,
New York 10017.
INVESTMENT ADVISOR. The Portfolio has retained the services of Morgan
as investment advisor. Morgan, with principal offices at 60 Wall Street, New
York, New York 10260, is a New York trust company which conducts a general
banking and trust business. Morgan is a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of Delaware. Through offices in New York City and abroad, J.P. Morgan,
through the Advisor and other subsidiaries, offers a wide range of services to
governmental, institutional, corporate and individual customers and acts as
investment adviser to individual and institutional clients with combined assets
under management over $225 billion. Morgan provides investment advice and
portfolio management services to the Portfolio. Subject to the supervision of
the Portfolio's Trustees, Morgan, as Advisor, makes the Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. See Item 16 in Part B.
Morgan uses a sophisticated, disciplined, collaborative process for
managing all asset classes. The following persons are primarily responsible for
the day-to-day management and implementation of Morgan's process for the
Portfolio (the inception date of each person's responsibility for the Portfolio
and his business experience for the past five years are indicated
parenthetically): Gerald H. Osterberg, Vice President (since July, 1993,
employed by Morgan since prior to 1992) and John M. Devlin, Vice President
(since December, 1993, employed by Morgan since prior to 1992).
As compensation for the services rendered and related expenses borne by
Morgan under the Investment Advisory Agreement with the Portfolio, the Portfolio
has agreed to pay Morgan a fee which is computed daily and may be paid monthly
at the annual rate of 0.55% of the Portfolio's average daily net assets.
Under a separate agreement, Morgan also provides administrative and
related services to the Portfolio. See "Administrative Services Agent" below.
CO-ADMINISTRATOR. Pursuant to a Co-Administration Agreement with the
Portfolio, FDI serves as the Co-Administrator for the Portfolio. FDI (I)
provides office space, equipment and clerical personnel for maintaining the
organization and books and records of the Portfolio; (ii) provides officers for
the Portfolio; (iii) files Portfolio regulatory documents and mails
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Portfolio communications to Trustees and investors; and (iv) maintains related
books and records. See Administrative Services Agent below.
For its services under the Co-Administration Agreement, the Portfolio
has agreed to pay FDI fees equal to its allocable share of an annual complex-
wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable
to the Portfolio is based on the ratio of its net assets to the aggregate net
assets of the Portfolio and certain other registered investment companies
subject to similar agreements with FDI.
ADMINISTRATIVE SERVICES AGENT. Pursuant to the Administrative Services
Agreement with the Portfolio, Morgan provides administrative and related
services to the Portfolio, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.
Under the Administrative Services Agreement, the Portfolio has agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Portfolio and certain other registered investment companies managed by the
Advisor in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets plus 0.04% of their
aggregate average daily net assets in excess of $7 billion, less the complex-
wide fees payable to FDI.
PLACEMENT AGENT. FDI, a registered broker-dealer, also serves as
exclusive placement agent for the Portfolio. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 225
Franklin Street, Boston, Massachusetts 02110 serves as the Portfolio's custodian
and fund accounting and transfer agent. State Street keeps the books of account
for the Portfolio at a location outside the United States.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees, registration fees under federal and foreign securities
laws, extraordinary expenses and brokerage expenses.
Morgan has agreed that it will reimburse the Portfolio through at least
October 31, 1998 to the extent necessary to maintain the Portfolio's total
operating expenses at the annual rate of 0.98% of the Portfolio's average daily
net assets. This limit does not cover extraordinary expenses during the period.
There is no assurance that Morgan will continue this waiver beyond the specified
period. For the fiscal year ended June 30, 1997 the Portfolio's total expenses
were 0.98% of its average net assets.
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ITEM 6. CAPITAL STOCK AND OTHER SECURITIES.
The Portfolio is organized as a trust under the laws of the State of
New York. Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio. Investments in the
Portfolio may not be transferred, but an investor may withdraw all or any
portion of its investment at any time at net asset value. Investors in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled trust funds) will each be liable for all obligations
of the Portfolio. However, the risk of an investor in the Portfolio incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate insurance existed and the Portfolio itself was unable to meet
its obligations.
As of September 2, 1997, The JPM Institutional Diversified Fund and The JPM
Pierpont Diversified Fund (series of The JPM Institutional Funds and The JPM
Pierpont Funds, respectively) owned 76% and 24%, respectively, of the
outstanding beneficial interests in the Portfolio. So long as The JPM
Institutional Diversified Fund controls the Portfolio, it may take actions
without the approval of any other holders of beneficial interest in the
Portfolio.
Investments in the Portfolio have no preemptive or conversion rights
and are fully paid and nonassessable, except as set forth below. The Portfolio
is not required and has no current intention of holding annual meetings of
investors, but the Portfolio will hold special meetings of investors when in the
judgment of the Trustees it is necessary or desirable to submit matters for an
investor vote. Changes in fundamental policies will be submitted to investors
for approval. Investors have under certain circumstances (e.g., upon application
and submission of certain specified documents to the Trustees by a specified
percentage of the outstanding interests in the Portfolio) the right to
communicate with other investors in connection with requesting a meeting of
investors for the purpose of removing one or more Trustees. Investors also have
the right to remove one or more Trustees without a meeting by a declaration in
writing by a specified percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.
The net asset value of the Portfolio is determined each business day
other than the holidays listed in Part B ("Portfolio Business Day"). This
determination is made once each Portfolio Business Day as of 4:15 p.m. New York
time (the "Valuation Time").
The "net income" of the Portfolio will consist of (I) all income
accrued, less the amortization of any premium, on the assets of the Portfolio,
less (ii) all actual and accrued expenses of the Portfolio determined in
accordance with generally accepted accounting principles. Interest income
includes discount earned (including both original issue and market discount) on
discount paper accrued ratably to the date of maturity and any net realized
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gains or losses on the assets of the Portfolio. All the net income of the
Portfolio is allocated pro rata among the investors in the Portfolio.
The end of the Portfolio's fiscal year is June 30.
Under the anticipated method of operation of the Portfolio, the
Portfolio will not be subject to any income tax. However, each investor in the
Portfolio will be taxable on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income and
capital gain in determining its income tax liability. The determination of such
share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code") and regulations promulgated thereunder.
It is intended that the Portfolio's assets, income and distributions
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.
Investor inquiries may be directed to FDI, in care of State Street
Cayman Trust Company, Ltd. at Elizabethan Square, Shedden Road, George Town,
Grand Cayman, Cayman Islands, BWI (345-949-6644).
ITEM 7. PURCHASE OF SECURITIES.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act. Investments in the Portfolio may only
be made by other investment companies, insurance company separate accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited investors" as defined in Rule 501 under the 1933 Act. This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.
An investment in the Portfolio may be made without a sales load. All
investments are made at net asset value next determined after an order is
received in "good order" by the Portfolio. The net asset value of the Portfolio
is determined on each Portfolio Business Day.
There is no minimum initial or subsequent investment in the Portfolio.
However, because the Portfolio intends to be as fully invested at all times as
is reasonably practicable in order to enhance the yield on its assets,
investments must be made in federal funds (i.e., monies credited to the account
of the Custodian by a Federal Reserve Bank).
The Portfolio may, at its own option, accept securities in payment for
investments in its beneficial interests. The securities delivered in kind are
valued by the method described in Net Asset Value as of the business day prior
to the day the Portfolio receives the securities. Securities may be accepted in
payment for beneficial interests only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio. In addition, securities accepted in
payment for beneficial interests must: (I) meet the investment
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objective and policies of the Portfolio; (ii) be acquired by the Portfolio for
investment and not for resale; (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. The Portfolio reserves the right to accept or reject
at its own option any and all securities offered in payment for beneficial
interests.
The Portfolio and FDI reserve the right to cease accepting investments
at any time or to reject any investment order.
Each investor in the Portfolio may add to or reduce its investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's beneficial interest in the Portfolio will be
determined by multiplying the net asset value of the Portfolio by the
percentage, effective for that day, which represents that investor's share of
the aggregate beneficial interests in the Portfolio. Any additions or
reductions, which are to be effected at the Valuation Time on such day, will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (I) the numerator of which is the value of such investor's
investment in the Portfolio at the Valuation Time on such day plus or minus, as
the case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected as of the Valuation Time, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine the value of the investor's interest in the Portfolio as of the
Valuation Time on the following Portfolio Business Day.
ITEM 8. REDEMPTION OR REPURCHASE.
An investor in the Portfolio may reduce all or any portion of its
investment at the net asset value next determined after a request in "good
order" is furnished by the investor to the Portfolio. The proceeds of a
reduction will be paid by the Portfolio in federal funds normally on the next
Portfolio Business Day after the reduction is effected, but in any event within
seven days. Investments in the Portfolio may not be transferred.
The right of any investor to receive payment with respect to any
reduction may be suspended or the payment of the proceeds therefrom postponed
during any period in which the New York Stock Exchange (the "NYSE") is closed
(other than weekends or holidays) or trading on the NYSE is restricted or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.
The Portfolio reserves the right under certain circumstances, such as
accommodating requests for substantial withdrawals or liquidations, to pay
distributions in kind to investors (i.e., to distribute portfolio securities as
opposed to cash). If securities are distributed, an investor could incur
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brokerage, tax or other charges in converting the securities to cash. In
addition, distribution in kind may result in a less diversified portfolio of
investments or adversely affect the liquidity of the Portfolio or the investor's
portfolio, as the case may be.
ITEM 9. PENDING LEGAL PROCEEDINGS.
Not applicable
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PART B
ITEM 10. COVER PAGE.
Not applicable.
ITEM 11. TABLE OF CONTENTS. PAGE
General Information and History . . . . . . . . . . . B-1
Investment Objective and Policies . . . . . . . . . . B-1
Management of the Portfolio . . . . . . . . . . . . . B-21
Control Persons and Principal Holders
of Securities . . . . . . . . . . . . . . . . . . . . B-26
Investment Advisory and Other Services . . . . . . . B-26
Brokerage Allocation and Other Practices . . . . . . B-31
Capital Stock and Other Securities . . . . . . . . . B-33
Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . . . . . . . . B-34
Tax Status . . . . . . . . . . . . . . . . . . . . . B-35
Underwriters . . . . . . . . . . . . . . . . . . . . B-38
Calculations of Performance Data . . . . . . . . . . B-38
Financial Statements . . . . . . . . . . . . . . . . B-38
ITEM 12. GENERAL INFORMATION AND HISTORY.
Not applicable.
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES.
The investment objective of The Diversified Portfolio (the "Portfolio")
is to provide a high total return from a diversified portfolio of equity and
fixed income securities. The Portfolio seeks to attain real appreciation over
the long-term but with somewhat less price fluctuation than a portfolio
consisting solely of debt securities.
The Portfolio is advised by Morgan Guaranty Trust Company of New York
("Morgan" or the "Advisor").
The following discussion supplements the information regarding the
investment objective of the Portfolio and the policies to be employed to achieve
this objective as set forth above and in Part A.
MONEY MARKET INSTRUMENTS
As discussed in Part A, the Portfolio may invest in money market
instruments and other short-term securities to the extent consistent with its
investment objective and policies. A description of the various types of money
market instruments that may be purchased by the Portfolio appears below. Also
see "Quality and Diversification Requirements."
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U.S. TREASURY SECURITIES. The Portfolio may invest in direct obligations of
the U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.
ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Portfolio must look principally to the federal agency issuing
or guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Portfolio
may invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
FOREIGN GOVERNMENT OBLIGATIONS. The Portfolio, subject to its applicable
investment policies, may also invest in short-term obligations of foreign
sovereign governments or of their agencies, instrumentalities, authorities or
political subdivisions. These securities may be denominated in the U.S. dollar
or in another currency. See "Foreign Investments".
BANK OBLIGATIONS. The Portfolio, unless otherwise noted in Part A or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (I) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these banks
or of foreign banks of equivalent size (Euros) and (iii) U.S. branches of
foreign banks of equivalent size (Yankees). The Portfolio will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. The Portfolio may also invest in obligations
of international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
COMMERCIAL PAPER. The Portfolio may invest in commercial paper including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
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agreements between the issuer and Morgan acting as agent, for no additional fee,
in its capacity as investment advisor to the Portfolio and as fiduciary for
other clients for whom it exercises investment discretion. The monies loaned to
the borrower come from accounts managed by the Advisor or its affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such accounts. The Advisor, acting as a fiduciary on behalf of its
clients, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by the Portfolio's Advisor.
Since master demand obligations typically are not rated by credit rating
agencies, the Portfolio may invest in such unrated obligations only if at the
time of an investment the obligation is determined by the Advisor to have a
credit quality which satisfies the Portfolio's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Portfolio to be liquid because they are payable upon demand. The Portfolio does
not have any specific percentage limitation on investments in master demand
obligations. It is possible that the issuer of a master demand obligation could
be a client of Morgan to whom Morgan, in its capacity as a commercial bank, has
made a loan.
REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees. In a repurchase agreement, the Portfolio buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Portfolio is invested in the agreement
and is not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by the
Portfolio to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Portfolio invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. The
Portfolio will always receive securities as collateral whose market value is,
and during the entire term of the agreement remains, at least equal to 100% of
the dollar amount invested by the Portfolio in each agreement plus accrued
interest, and the Portfolio will make payment for such securities only upon
physical delivery or upon evidence of book entry transfer to the account of the
Portfolio's custodian (the "Custodian"). If the seller defaults, the Portfolio
might incur a loss if the value of the collateral securing the repurchase
agreement declines and might incur disposition costs in connection with
liquidating the collateral. In addition, if bankruptcy proceedings are commenced
with respect to the seller of the
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security, realization upon disposal of the collateral by the Portfolio may be
delayed or limited.
The Portfolio may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in Part A or this Part B.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in Part A, the Portfolio may invest in bonds and other
debt securities of domestic and foreign issuers to the extent consistent with
its investment objectives and policies. A description of these investments
appears in Part A and below. See "Quality and Diversification Requirements." For
information on short-term investments in these securities, see "Money Market
Instruments."
MORTGAGE-BACKED SECURITIES. The Portfolio may invest in mortgage-backed
securities. Each mortgage pool underlying mortgage-backed securities consists of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
owner occupied and non-owner occupied one-unit to four-unit residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties. The investment characteristics
of adjustable and fixed rate mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include the payment
of interest and principal on mortgage-backed securities on a more frequent
(usually monthly) schedule and the possibility that principal may be prepaid at
any time due to prepayments on the underlying mortgage loans or other assets.
These differences can result in significantly greater price and yield volatility
than is the case with traditional fixed income securities. As a result, a faster
than expected prepayment rate will reduce both the market value and the yield to
maturity from those which were anticipated. A prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity and
market value.
GOVERNMENT GUARANTEED MORTGAGE-BACKED SECURITIES. Government National
Mortgage Association mortgage-backed certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of instrumentalities such as the
Federal Home Loan Mortgage Corporation ("Freddie Macs") and the Federal National
Mortgage Association ("Fannie Maes"). No assurance can be given that the U.S.
Government will provide financial support to these federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.
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There are several types of guaranteed mortgage-backed securities
currently available, including guaranteed mortgage pass-through certificates and
multiple class securities, which include guaranteed real estate mortgage
investment conduit certificates ("REMIC Certificates"), other collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities.
Mortgage pass-through securities are fixed or adjustable rate
mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies, instrumentalities (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
mortgage-backed securities represent direct ownership interests in, a pool of
mortgage loans or mortgaged-backed securities and payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Portfolio does not intend to purchase residual
interests in REMICs. The REMIC Certificates represent beneficial ownership
interests in a REMIC trust, generally consisting of mortgage loans or Fannie
Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities (the
"Mortgage Assets"). The obligations of Fannie Mae and Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie
Mae and Freddie Mac, respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class
of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets underlying
the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or
REMIC Certificates to be retired substantially earlier than their final
scheduled distribution dates. Generally, interest is paid or accrues on all
classes of CMOs or REMIC Certificates on a monthly basis.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities, issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or by
private issuers. Although the market for such securities is increasingly liquid,
privately issued SMBS may not be readily marketable and will be considered
illiquid for purposes of the Portfolio's limitation on investments in illiquid
securities. The Advisor may determine that SMBS which are U.S.
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Government securities are liquid for purposes of the Portfolio's limitation on
investments in illiquid securities in accordance with procedures adopted by the
Board of Trustees. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from Mortgage Assets are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.
ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. While
interest payments are not made on such securities, holders of such securities
are deemed to have received "phantom income." Because the Portfolio will
distribute "phantom income" to shareholders, to the extent that shareholders
elect to receive dividends in cash rather than reinvesting such dividends in
additional shares, the Portfolio will have fewer assets with which to purchase
income producing securities.
ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a participation interest in, or are secured by and payable from, a
stream of payments generated by particular assets such as motor vehicle or
credit card receivables or other asset-backed securities collateralized by such
assets. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which the Portfolio may invest are subject to the
Portfolio's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
EQUITY INVESTMENTS
As discussed in Part A, the equity portion of the Portfolio invests
primarily in equity securities consisting of common stock and other securities
with equity characteristics comprised of preferred stock, warrants, rights,
convertible securities, trust certificates, limited partnership interests and
equity participations (collectively, "Equity Securities"). The Equity Securities
in which the Portfolio invests include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities.
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EQUITY SECURITIES. The Equity Securities in which the Portfolio may
invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital
structure.
The convertible securities in which the Portfolio may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
COMMON STOCK WARRANTS
The Portfolio may invest in common stock warrants that entitle the
holder to buy common stock from the issuer of the warrant at a specific price
(the strike price) for a specific period of time. The market price of warrants
may be substantially lower than the current market price of the underlying
common stock, yet warrants are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying common
stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
FOREIGN INVESTMENTS
The Portfolio may invest in certain foreign securities. The Portfolio
does not expect to invest more than 30% of its total assets at the time of
purchase in securities of foreign issuers and in obligations of foreign branches
of domestic banks. The economies of individual foreign nations may differ from
the U.S. economy, whether favorably or unfavorably, in areas such as growth of
gross national product, rate of inflation, capital reinvestment, resource
self-sufficiency and balance of payments position; it may also be more difficult
to obtain and enforce a judgment against a foreign issuer. Any foreign
investments made by the Portfolio must be made in compliance with U.S. and
foreign currency restrictions and tax laws restricting the amounts and types of
foreign investments.
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Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depositary receipt generally bear all costs
of the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of the Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Portfolio may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Portfolio's
currency exposure related to foreign investments.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS. Because the Portfolio may buy
and sell securities and receive interest and dividends in currencies other than
the U.S. dollar, the Portfolio may enter from time to time into foreign currency
exchange transactions. The Portfolio either enters into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market or uses forward contracts to purchase or sell foreign
currencies. The cost of the Portfolio's spot currency exchange transactions is
generally the difference between the bid and offer spot rate of the currency
being purchased or sold.
A foreign currency forward exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Foreign currency forward
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A foreign currency forward exchange contract
generally has no deposit requirement and is traded
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at a net price without commission. Neither spot transactions nor foreign
currency forward exchange contracts eliminate fluctuations in the prices of the
Portfolio's securities or in foreign exchange rates, or prevent loss if the
prices of these securities should decline.
The Portfolio may enter into foreign currency forward exchange
contracts to ajust its currency exposure relative to the MSCI EAFE Index, the
benchmark for its international equity investments. The Portfolio may also enter
into foreign currency forward exchange contracts in connection with settlements
of securities transactions and other anticipated payments or receipts. In
addition, from time to time, the Advisor may reduce the Portfolio's foreign
currency exposure by entering into foreign currency forward exchange contracts
to sell a foreign currency in exchange for the U.S. dollar. Foreign currency
forward exchange contracts may involve the purchase or sale of a foreign
currency in exchange for U.S. dollars or may involve two foreign currencies.
ADDITIONAL INVESTMENTS
WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and for money market instruments and other fixed income securities
no interest accrues to the Portfolio until settlement takes place. At the time
the Portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction, reflect the value each
day of such securities in determining its net asset value and, if applicable,
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, the Portfolio will maintain
with the Custodian a segregated account with liquid assets, consisting of cash,
U.S. Government securities or other appropriate securities, in an amount at
least equal to such commitments. On delivery dates for such transactions, the
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If the Portfolio chooses
to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. It is the current
policy of the Portfolio not to enter into when-issued commitments exceeding in
the aggregate 15% of the market value of the Portfolio's total assets, less
liabilities other than the obligations created by when-issued commitments.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Portfolio to the extent permitted under the Investment
Company Act of 1940, as amended (the "1940 Act"). These limits require that, as
determined immediately after a purchase is made, (I) not more than 5% of the
value of the Portfolio's total assets will be invested in the securities of any
one investment company, (ii) not more than 10% of the value of its total assets
will be invested in the aggregate in securities of investment
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companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by the Portfolio. As a shareholder
of another investment company, the Portfolio would bear, along with other
shareholders, its PRO RATA portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that the Portfolio bears directly in connection with its own
operations. The Portfolio has applied for exemptive relief from the Securities
and Exchange Commission ("SEC") to permit the Portfolio to invest in affiliated
investment companies. If the requested relief is granted, the Portfolio would
then be permitted to invest in affiliated Funds, subject to certain conditions
specified in the applicable order.
REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. For purposes of the 1940 Act, a reverse repurchase agreement is
also considered as the borrowing of money by the Portfolio and, therefore, a
form of leverage. The Portfolio will invest the proceeds of borrowings under
reverse repurchase agreements. In addition, the Portfolio will enter into a
reverse repurchase agreement only when the interest income to be earned from the
investment of the proceeds is greater than the interest expense of the
transaction. The Portfolio will not invest the proceeds of a reverse repurchase
agreement for a period which exceeds the duration of the reverse repurchase
agreement. The Portfolio will establish and maintain with the Custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase agreements. See
"Investment Restrictions" for the Portfolio's limitations on reverse repurchase
agreements and bank borrowings.
LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. The Portfolio may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Portfolio will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Portfolio will not make any loans in excess of one year.
The Portfolio will not lend its securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolio, the Advisor, Exclusive Placement
Agent or Administrator, unless otherwise permitted by applicable law.
PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolio may
not acquire any illiquid holdings if, as a result thereof, more than 15% of
the Portfolio's net assets would be in illiquid investments. Subject to this
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non-fundamental policy limitation, the Portfolio may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act") and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which it is valued by the Portfolio. The
price the Portfolio pays for illiquid holdings or receives upon resale may be
lower than the price paid or received for similar holdings with a more liquid
market. Accordingly the valuation of these holdings will reflect any limitations
on their liquidity.
The Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, the Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid holding
must be registered under the Securities Act of 1933, as amended (the "1933
Act"), before it may be sold, the Portfolio may be obligated to pay all or part
of the registration expenses and a considerable period may elapse between the
time of the decision to sell and the time the Portfolio may be permitted to sell
a holding under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Portfolio might obtain a less
favorable price than prevailed when it decided to sell.
QUALITY AND DIVERSIFICATION REQUIREMENTS
The Portfolio intends to meet the diversification requirements of the
1940 Act. To meet these requirements, 75% of the assets of the Portfolio is
subject to the following fundamental limitations: (1) the Portfolio may not
invest more than 5% of its total assets in the securities of any one issuer,
except obligations of the U.S. Government, its agencies and instrumentalities,
and (2) the Portfolio may not own more than 10% of the outstanding voting
securities of any one issuer. As for the other 25% of the Portfolio's assets not
subject to the limitation described above, there is no limitation on investment
of these assets under the 1940 Act, so that all of such assets may be invested
in securities of any one issuer. Investments not subject to the limitations
described above could involve an increased risk to the Portfolio should an
issuer, or a state or its related entities, be unable to make interest or
principal payments or should the market value of such securities decline.
BELOW INVESTMENT GRADE DEBT. Certain lower rated securities purchased
by the Portfolio, such as those rated Ba or B by Moody's Investors Service
("Moody's") or BB or B by Standard & Poor's Ratings Group ("Standard & Poor's")
(commonly known as junk bonds), may be subject to certain risks with respect to
the issuing entity's ability to make scheduled payments of
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principal and interest and to greater market fluctuations. While generally
providing higher coupons or interest rates than investments in higher quality
securities, lower quality fixed income securities involve greater risk of loss
of principal and income, including the possibility of default or bankruptcy of
the issuers of such securities, and have greater price volatility, especially
during periods of economic uncertainty or change. These lower quality fixed
income securities tend to be affected by economic changes and short-term
corporate and industry developments to a greater extent than higher quality
securities, which react primarily to fluctuations in the general level of
interest rates. To the extent that the Portfolio invests in such lower quality
securities, the achievement of its investment objective may be more dependent on
the Advisor's own credit analysis.
Lower quality fixed income securities are affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. Economic downturns or an
increase in interest rates may cause a higher incidence of default by the
issuers of these securities, especially issuers that are highly leveraged. The
market for these lower quality fixed income securities is generally less liquid
than the market for investment grade fixed income securities. It may be more
difficult to sell these lower rated securities to meet redemption requests, to
respond to changes in the market, or to value accurately the Portfolio's
portfolio securities for purposes of determining the Fund's net asset value. See
Appendix A for more detailed information on these ratings.
The Portfolio may invest in convertible debt securities, for which
there are no specific quality requirements. In addition, at the time the
Portfolio invests in any commercial paper, bank obligation or repurchase
agreement, the issuer must have outstanding debt rated A or higher by Moody's or
Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard &
Poor's, or if no such ratings are available, the investment must be of
comparable quality in the Advisor's opinion. At the time the Portfolio invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion. A description of illustrative
credit ratings is set forth in Appendix A attached to this Part B.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
OPTIONS AND FUTURES TRANSACTIONS
The Portfolio may purchase and sell (a) exchange traded and
over-the-counter (OTC) put and call options on fixed income or equity securities
and indexes of fixed income or equity securities, (b) futures contracts on fixed
income securities and indexes of fixed income or equity securities and (c) put
and call options on futures contracts on fixed income securities and indexes of
fixed income or equity securities. Each of these
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instruments is a derivative instrument as its value derives from the
underlying asset or index.
The Portfolio may use futures contracts and options for hedging and
risk management purposes. See "Risk Management" below. The Portfolio may not use
futures contracts and options for speculation.
The Portfolio may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge the Portfolio's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the Portfolio's overall strategy in a manner deemed
appropriate to the Advisor and consistent with the Portfolio's objective and
policies. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Portfolio's return. While the use of these
instruments by the Portfolio may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If
the Advisor applies a strategy at an inappropriate time or judges market
conditions or trends incorrectly, options and futures strategies may lower the
Portfolio's return. Certain strategies limit the Portfolio's possibilities to
realize gains as well as limiting its exposure to losses. The Portfolio could
also experience losses if the prices of its options and futures positions were
poorly correlated with its other investments, or if it could not close out its
positions because of an illiquid secondary market. In addition, the Portfolio
will incur transaction costs, including trading commissions and option premiums,
in connection with its futures and options transactions and these transactions
could significantly increase the Portfolio's turnover rate.
The Portfolio may purchase put and call options on securities, indexes
of securities and futures contracts, or purchase and sell futures contracts,
only if such options are written by other persons and if (I) the aggregate
premiums paid on all such options which are held at any time do not exceed 20%
of the Portfolio's net assets, and (ii) the aggregate margin deposits required
on all such futures or options thereon held at any time do not exceed 5% of the
Portfolio's total assets. In addition, the Portfolio will not purchase or sell
(write) futures contracts, options on futures contracts or commodity options for
risk management purposes if, as a result, the aggregate initial margin and
options premiums required to establish these positions exceed 5% of the net
asset value of the Portfolio.
OPTIONS
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PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
Portfolio obtains the right (but not the obligation) to sell the instrument
underlying the option at a fixed strike price. In return for this right, the
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indexes of securities, indexes of securities prices, and
futures contracts. The Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If the Portfolio exercises an option on an index,
settlement is in cash and does not involve the actual sale of securities. If an
option is American style, it may be exercised on any day up to its expiration
date. A European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. The Portfolio may seek to
terminate its position in a put option it writes before exercise by purchasing
an offsetting option in the market at its current price. If the market is not
liquid for a put option the Portfolio has written, however, the Portfolio must
continue to be prepared to pay the strike price while the option is outstanding,
regardless of price changes, and must continue to post margin as discussed
below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because
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<PAGE>
the premium received for writing the option should offset a portion of the
decline.
Writing a call option obligates the Portfolio to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
OPTIONS ON INDEXES. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. The Portfolio, in purchasing or
selling index options, is subject to the risk that the value of its portfolio
securities may not change as much as an index because the Portfolio's
investments generally will not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus the
Portfolio may not be able to close out an option position that it has previously
entered into. When the Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and the Portfolio may incur
additional losses if the counterparty is unable to perform.
EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Portfolio will be traded on a securities exchange or will be purchased or sold
by securities dealers (OTC options) that meet creditworthiness standards
approved by the Portfolio's Board of Trustees. While exchange-traded options are
obligations of the Options Clearing Corporation, in the case of OTC options, the
Portfolio relies on the dealer from which it purchased the option to perform if
the option is exercised. Thus, when the Portfolio purchases an OTC option, it
relies on the dealer from which it purchased the option to make or take delivery
of the underlying securities. Failure by the dealer to do so would result in the
loss of the premium paid by the Portfolio as well as loss of the expected
benefit of the transaction.
Provided that the Portfolio has arrangements with certain qualified
dealers who agree that the Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula, the Portfolio may
treat the underlying securities used to cover written OTC options as liquid.
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In these cases, the OTC option itself would only be considered illiquid to the
extent that the maximum repurchase price under the formula exceeds the intrinsic
value of the option.
FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Portfolio may
purchase or sell (write) futures contracts and purchase put and call options ,
including put and call options on futures contracts. In addition, the Portfolio
may sell (write) put and call options, including options on futures. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by the Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
COMBINED POSITIONS. The Portfolio may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the
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Portfolio's current or anticipated investments exactly. The Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Portfolio's options
or futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require the Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. The
Portfolio intends to comply with Section 4.5 of the regulations under the
Commodity Exchange Act, which limits the extent to which the Portfolio can
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commit assets to initial margin deposits and option premiums. In addition, the
Portfolio will comply with guidelines established by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require, will set aside appropriate liquid assets in a segregated custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the futures contract or option is outstanding, unless they are
replaced with other suitable assets. As a result, there is a possibility that
segregation of a large percentage of the Portfolio's assets could impede
portfolio management or the Portfolio's ability to meet redemption requests or
other current obligations.
RISK MANAGEMENT
The Portfolio may employ non-hedging risk management techniques.
Examples of risk management strategies include synthetically altering the
duration of the fixed income portion of the Portfolio or the mix of securities
in the Portfolio. For example, if the Advisor wishes to extend maturities in the
fixed income portion of the portfolio in order to take advantage of an
anticipated decline in interest rates, but does not wish to purchase the
underlying long-term securities, it might cause the portfolio to purchase
futures contracts on long-term debt securities. Similarly, if the Advisor wishes
to decrease fixed income securities or purchase equities, it could cause the
portfolio to sell futures contracts on debt securities and purchase futures
contracts on a stock index. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
PORTFOLIO TURNOVER. The portfolio turnover rates for the fiscal years
ended June 30, 1996 and 1997 were 144%, and 100% respectively. A rate of 100%
indicates that the equivalent of all of the Portfolio's assets have been sold
and reinvested in a year. High portfolio turnover may result in the realization
of substantial net capital gains. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See Item 20 below.
INVESTMENT RESTRICTIONS
The investment restrictions below have been adopted by the Portfolio.
Except where otherwise noted, these investment restrictions are "fundamental"
policies which, under the 1940 Act, may not be changed without the vote of a
"majority of the outstanding voting securities" (as defined in the 1940 Act) of
the Portfolio. A "majority of the outstanding voting securities" is defined in
the 1940 Act as the lesser of (a) 67% or more of the voting securities present
at a meeting if the holders of more than 50% of the outstanding voting
securities are present and represented by proxy, or (b) more than 50% of the
outstanding voting securities. The percentage limitations contained in the
restrictions below apply at the time of the purchase of securities.
The Portfolio may not:
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1. Purchase the securities or other obligations of issuers
conducting their principal business activity in the same
industry if, immediately after such purchase the value of its
investments in such industry would exceed 25% of the value of
the Portfolio's total assets. For purposes of industry
concentration, there is no percentage limitation with respect
to investments in U.S.
Government securities1;
2. Purchase the securities or other obligations of any one issuer
if, immediately after such purchase, more than 5% of the value
of the Portfolio's total assets would be invested in
securities or other obligations of any one such issuer. This
limitation shall not apply to securities issued or guaranteed
by the U.S. Government, its agencies or instrumentalities and
to permitted investments of up to 25% of the Portfolio's total
assets;
3. Purchase the securities of an issuer if, immediately after such
purchase, the Portfolio owns more than 10% of the outstanding
voting securities of such issuer. This limitation shall not apply
to permitted investments of up to 25% of the Portfolio's total
assets;
4. Borrow money (not including reverse repurchase agreements), except
from banks for temporary or extraordinary or emergency purposes
and then only in amounts up to 30% of the value of the
Portfolio's total assets, taken at cost at the time of such
borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of
the market value of the Portfolio's total assets less liabilities
other than the obligations represented by the bank borrowings and
reverse repurchase agreements). The Portfolio will not mortgage,
pledge, or hypothecate any assets except in connection with any
such borrowing and in amounts not to exceed 30% of the value of
the Portfolio's net assets at the time of such borrowing. The
Portfolio will not purchase securities while borrowings exceed 5%
of the Portfolio's total assets. This borrowing provision is
included to facilitate the orderly sale of portfolio securities,
for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes. Collateral arrangements for
premium and margin payments in connection with the Portfolio's use
of futures contracts and options activities are not deemed to be a
pledge of assets;
5. Issue any senior security, except as appropriate to evidence
indebtedness which constitutes a senior security and which the
Portfolio is permitted to incur pursuant to Investment Restriction
No. 4 and except that the Portfolio may enter into reverse
- --------
1For purposes of this limitation, the staff of the
SEC considers (a) all supranational organizations as a group
to be a single industry and (b) each foreign government and
its political subdivisions to be a single industry.
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repurchase agreements, provided that the aggregate of senior
securities, including reverse repurchase agreements, shall not
exceed one-third of the market value of the Portfolio's total
assets, less liabilities other than obligations created by
reverse repurchase agreements. The Portfolio's arrangements in
connection with its use of futures contracts and options shall
not be considered senior securities for purposes hereof;
6. Make loans, except through the purchase or holding of debt
obligations (including privately placed securities) or the
entering into of repurchase agreements, or loans of portfolio
securities in accordance with the Portfolio's investment
objective and policies;
7. Purchase or sell commodities, or commodity contracts, but this
restriction shall not prohibit the Portfolio from purchasing or
selling futures contracts or options (including options on futures
contracts, but excluding options or futures contracts on physical
commodities) or entering into foreign currency forward contracts;
or purchase or sell real estate or interests in oil, gas, or
mineral exploration or development programs. However, the
Portfolio may purchase securities or commercial paper issued by
companies which invest in real estate or interests therein,
including real estate investment trusts, and purchase instruments
secured by real estate or interests therein;
8. Purchase securities on margin, make short sales of securities,
or maintain a short position in securities, except to obtain
such short term credit as necessary for the clearance of
purchases and sales of securities; provided that this
restriction shall not be deemed to be applicable to the
purchase or sale of when-issued or delayed delivery securities
or to restrict the Portfolio use of futures contracts or
options;
9. Acquire securities of other investment companies, except as
permitted by the 1940 Act or in connection with a merger,
consolidation, reorganization, acquisition of assets or an offer
of exchange; or
10. Act as an underwriter of securities.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Portfolio and may be changed
by the Trustees. These non-fundamental investment policies require that the
Portfolio may not:
(i) acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Portfolio's net assets would be in investments that are illiquid;
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There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, Morgan may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION (the "SEC") or other sources. In the
absence of such classification or if Morgan determines in good faith based on
its own information that the economic characteristics affecting a particular
issuer make it more appropriately considered to be engaged in a different
industry, Morgan may classify an issuer accordingly. For instance, personal
credit finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
ITEM 14. MANAGEMENT OF THE PORTFOLIO.
The Trustees and officers of the Portfolio, their business addresses
and principal occupations during the past five years and dates of birth are set
forth below. Their titles may have varied during that period. An asterisk
indicates that a Trustee is an "interested person" (as defined in the 1940 Act)
of the Portfolio.
TRUSTEES AND OFFICERS
TRUSTEES
Frederick S. Addy - Trustee; Retired; Executive Vice President and
Chief Financial Officer since prior to April 1994, Amoco Corporation. His
address is 5300 Arbutus Cove, Austin, TX 78746, and his date of birth is January
1, 1932.
William G. Burns - Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, FL 32779,
and his date of birth is November 2, 1932.
Arthur C. Eschenlauer - Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, NJ 08540, and his date of birth is May 23, 1934.
Matthew Healey* - Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. ("Pierpont Group ") since prior to 1992. His
address is Pine Tree Country Club Estates, 10286 St. Andrews Road, Boynton
Beach, FL 33436, and his date of birth is August 23, 1937.
- ----------------------
* Mr. Healey is an "interested person" of the Portfolio and the Advisor as
that term is defined in the 1940 Act.
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Michael P. Mallardi - Trustee; Retired; Senior Vice President, Capital
Cities/ABC, Inc. and President, Broadcast Group since prior to April 1996. His
address is 10 Charnwood Drive, Suffern, NY 10901, and his date of birth is March
17, 1934.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Master Portfolios (as defined
below), The JPM Pierpont Funds, The JPM Institutional Funds and JPM Series Trust
and is reimbursed for expenses incurred in connection with service as a Trustee.
The Trustees may hold various other directorships unrelated to the Portfolio.
Trustee compensation expenses accrued by the Portfolio for the calendar
year ended December 31, 1996 is set forth below.
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
PORTFOLIOS(*), THE JPM
AGGREGATE TRUSTEE INSTITUTIONAL FUNDS AND
COMPENSATION ACCRUED BY THE THE JPM PIERPONT
NAME OF TRUSTEE PORTFOLIO DURING 1996 FUNDS DURING 1996(***)
Frederick S. Addy, $801.90 $65,000
Trustee
William G. Burns, $801.90 $65,000
Trustee
Arthur C. Eschenlauer, $801.90 $65,000
Trustee
Matthew Healey, $801.90 $65,000
Trustee(**), Chairman
and Chief Executive
Officer
Michael P. Mallardi, $801.90 $65,000
Trustee
- --------------------------------------- ----------------------------------
(*) Includes the Portfolio and 21 other portfolios (collectively, the
"Master Portfolios") for which Morgan acts as investment adviser.
(**) During 1996, Pierpont Group paid Mr. Healey, in his role as Chairman of
Pierpont Group, compensation in the amount of $140,000, contributed
$21,000 to a defined contribution plan on his behalf and paid $21,500
in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15
investment companies comprising the Master Portfolios, The JPM Pierpont
Funds, The JPM Institutional Funds and JPM Series Trust) in the fund
complex.
The Trustees of the Portfolio are the same as the Trustees of each of
the other Master Portfolios, The JPM Pierpont Funds, The JPM Institutional Funds
and JPM Series Trust. In accordance with applicable state requirements, a
majority of the disinterested Trustees have adopted written procedures
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reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Master Portfolios, The
JPM Pierpont Funds, The JPM Institutional Funds and JPM Series Trust, up to and
including creating a separate board of trustees.
The Trustees of the Portfolio, in addition to reviewing actions of the
Portfolio's various service providers, decide upon matters of general policy. On
January 15, 1994 the Portfolio entered into a Portfolio Fund Services Agreement
with Pierpont Group to assist the Trustees in exercising their overall
supervisory responsibilities for the Portfolio's affairs. Pierpont Group was
organized in July 1989 to provide services for The Pierpont Family of Funds, and
the Trustees are the equal and sole shareholders of Pierpont Group. The
Portfolio has agreed to pay Pierpont Group a fee in an amount representing its
reasonable costs in performing these services to the Portfolio and other
registered investment companies subject to similar agreements with Pierpont
Group. These costs are periodically reviewed by the Trustees. The aggregate fees
paid to Pierpont Group by the Portfolio for the fiscal years ended June 30,
1995, 1996, and 1997 were $11,702, $13,109, and $9,911, respectively. The
Portfolio has no employees; its executive officers (listed below), other than
the Chief Executive Officer, are provided and compensated by Funds Distributor,
Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group,
Inc. The Portfolio's officers conduct and supervise the business operations of
the Portfolio.
OFFICERS
The officers of the Portfolio, their principal occupations during the
past five years and dates of birth are set forth below. The business address of
each of the officers unless otherwise noted is 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1992. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, FL 33436. His date of birth is August 23, 1937.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies advised or administered by the Dreyfus
Corporation ("Dreyfus") or its affiliates. From December 1991 to July 1994, she
was President and Chief Compliance Officer of FDI. Her date of birth is August
1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant
Vice President and Manager of Treasury Services and Administration of FDI and
an officer of certain investment companies advised or administered by Dreyfus
or its affiliates. Prior to April 1997, Mr. Conroy was Supervisor of Treasury
Services and Administration of FDI. From April 1993 to January 1995, Mr.
Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. Prior
to March 1993, Mr. Conroy was employed as a fund accountant at The Boston
Company, Inc. His date of birth is March 31, 1969.
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JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer.
Managing Director, State Street Cayman Trust Company, Ltd. since October 1994.
Prior to October 1994, Mrs. Henning was head of mutual funds at Morgan
Grenfell in Cayman and for five years was Managing Director of Bank of Nova
Scotia Trust Company (Cayman) Limited from September 1988 to September 1993.
Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George
Town, Grand Cayman, Cayman Islands. Her date of birth is March 24, 1942.
RICHARD W. INGRAM; President and Treasurer. Executive Vice President
and Director of Client Services and Treasury Administration of FDI, Senior Vice
President of Premier Mutual and an officer of RCM Capital Funds, Inc., RCM
Equity Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or Harris Trust and
Savings Bank ("Harris") or their respective affiliates. Prior to April 1997, Mr.
Ingram was Senior Vice President and Director of Client Service and Treasury
Administration of FDI. From March 1994 to November 1995, Mr. Ingram was Vice
President and Division Manager of First Data Investor Services Group, Inc. From
1989 to 1994, Mr. Ingram was Vice President, Assistant Treasurer and Tax
Director - Mutual Funds of The Boston Company, Inc. His date of birth is
September 15, 1955.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Assistant
Vice President of FDI and an officer of RCM Capital Funds, Inc. and RCM Equity
Funds, Inc., Waterhouse Investors Cash Management Fund, Inc. and Harris or
their respective affiliates. From June 1994 to January 1996, Ms. Jacoppo-
Wood was a Manager, SEC Registration, Scudder, Stevens & Clark, Inc. From
1988 to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston
Company Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.
ELIZABETH A. KEELEY; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and Premier Mutual and an officer of RCM
Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus or Harris or their respective affiliates. Prior to August 1996,
Ms. Keeley was Assistant Vice President and Counsel of FDI and Premier Mutual.
Prior to September 1995, Ms. Keeley was enrolled at Fordham University School
of Law and received her JD in May 1995. Address: 200 Park Avenue, New York,
New York 10166. Her date of birth is September 14, 1969.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Associate General Counsel of FDI and Premier Mutual and an
officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Harris or its affiliates.
From April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum
Financial Group. From 1992 to 1994, Mr. Kelley was employed by Putnam
Investments in legal and compliance capacities. His date of birth is December
24, 1964.
LENORE J. MCCABE; Assistant Secretary and Assistant Treasurer.
Assistant Vice President, State Street Bank and Trust Company since November
1994. Assigned as Operations Manager, State Street Cayman Trust Company,
Ltd. since February 1995. Prior to November, 1994, employed by Boston
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Financial Data Services, Inc. as Control Group Manager. Address: P.O. Box
2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand
Cayman, Cayman Islands. Her date of birth is May 31, 1961.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual,
an officer of RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse
Investors Cash Management Fund, Inc. and certain investment companies advised
or administered by Dreyfus or Harris or their respective affiliates. From
1989 to 1994, Ms. Nelson was an Assistant Vice President and Client Manager
for The Boston Company, Inc. Her date of birth is April 22, 1964.
JOHN E. PELLETIER; Vice President and Secretary. Senior Vice President,
General Counsel, Secretary and Clerk of FDI and Premier Mutual and an officer of
RCM Capital Funds, Inc., RCM Equity Funds, Inc., Waterhouse Investors Cash
Management Fund, Inc. and certain investment companies advised or administered
by Dreyfus or Harris or their respective affiliates. From February 1992 to April
1994, Mr. Pelletier served as Counsel for TBCA. His date of birth is June 24,
1964.
MICHAEL S. PETRUCELLI; Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. Address: 200 Park Avenue,
New York, New York, 10166. His date of birth is May 18, 1961.
JOSEPH F. TOWER III; Vice President and Assistant Treasurer. Executive
Vice President, Treasurer and Chief Financial Officer, Chief Administrative
Officer and Director Of FDI. Senior Vice President, Treasurer and Chief
Financial Officer Chief Administrative Officer and Director of Premier Mutual
and an officer of Waterhouse Investors Cash Management Fund, Inc. and certain
investment companies advised or administered by Dreyfus or its affiliates.
Prior to April 1997, Mr. Tower was Senior Vice President, Treasurer and Chief
Financial Officer, Chief Administrative Officer and Director of FDI. From
July 1988 to November 1993, Mr. Tower was Financial Manager of The Boston
Company, Inc. His date of birth is June 13, 1962.
The Portfolio's Declaration of Trust provides that it will indemnify
its Trustees and officers against liabilities and expenses incurred in
connection with litigation in which they may be involved because of their
offices with the Portfolio, unless, as to liability to the Portfolio or its
investors, it is finally adjudicated that they engaged in wilful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in
their offices, or unless with respect to any other matter it is finally
adjudicated that they did not act in good faith in the reasonable belief that
their actions were in the best interests of the Portfolio. In the case of
settlement, such indemnification will not be provided unless it has been
determined by a court or other body approving the settlement or other
disposition, or by a reasonable determination, based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a
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written opinion of independent counsel, that such officers or Trustees have not
engaged in wilful misfeasance, bad faith, gross negligence or reckless disregard
of their duties.
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.
As of September 2, 1997, The JPM Institutional Diversified Fund and The
JPM Pierpont Diversified Fund (series of The JPM Institutional Funds and The JPM
Pierpont Funds, respectively) owned 76% and 24%, respectively, of the
outstanding beneficial interests in the Portfolio. So long as The JPM
Institutional Diversified Fund controls the Portfolio, it may take actions
without the approval of any other holders of beneficial interest in the
Portfolio.
Each of the Funds has informed the Portfolio that whenever it is
requested to vote on matters pertaining to the Portfolio (other than a vote by
the Portfolio to continue the operation of the Portfolio upon the withdrawal of
another investor in the Portfolio), it will hold a meeting of its shareholders
and will cast its vote as instructed by those shareholders.
The officers and Trustees of the Portfolio own none of the outstanding
beneficial interests in the Portfolio.
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES.
INVESTMENT ADVISOR. The investment advisor to the Portfolio is Morgan
Guaranty Trust Company of New York, a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), a bank holding company organized under the
laws of the State of Delaware. The Advisor, whose principal offices are at 60
Wall Street, New York, New York 10260, is a New York trust company which
conducts a general banking and trust business. The Advisor is subject to
regulation by the New York State Banking Department and is a member bank of the
Federal Reserve System. Through offices in New York City and abroad, The Advisor
offers a wide range of services, primarily to governmental, institutional,
corporate and high net worth individual customers in the U.S.
and throughout the world.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of more than $225 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
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Tokyo, Frankfurt, Melbourne and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolio. See Item
17 below.
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolio are currently: 52%
S&P 500 Index, 35% Salomon Brothers Broad Investment Grade Bond, 3% Russell 2000
and 10% MSCI EAFE indexes.
J.P. Morgan Investment Management Inc., also a wholly owned subsidiary
of J.P. Morgan, is a registered investment adviser under the Investment Advisers
Act of 1940, as amended, which manages employee benefit funds of corporations,
labor unions and state and local governments and the accounts of other
institutional investors, including investment companies. Certain of the assets
of employee benefit accounts under its management are invested in commingled
pension trust funds for which the Advisor serves as trustee. J.P. Morgan
Investment Management Inc. advises the Advisor on investment of the commingled
pension trust funds.
The Portfolio is managed by officers of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan Investment Management Inc. and certain other investment management
affiliates of J.P Morgan.
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As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.55% of the
Portfolio's average daily net assets.
For the fiscal years ended June 30, 1995, 1996, and 1997 the Portfolio
paid $663,000 $1,122,941, and $1,591,589, respectively, in advisory fees.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
annually thereafter (I) by a vote of the holders of a majority of the
Portfolio's outstanding securities or by its Trustees and (ii) by a vote of a
majority of the Trustees who are not parties to the Advisory Agreement or
"interested persons" as defined by the 1940 Act cast in person at a meeting
called for the purpose of voting on such approval. The Investment Advisory
Agreement will terminate automatically if assigned and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Portfolio or by a
vote of the holders of a majority of the Portfolio's voting securities on 60
days' written notice to the Advisor and by the Advisor on 90 days' written
notice to the Portfolio.
The Glass-Steagall Act and other applicable laws generally prohibit
banks such as Morgan from engaging in the business of underwriting or
distributing securities, and the Board of Governors of the Federal Reserve
System has issued an interpretation to the effect that under these laws a bank
holding company registered under the federal Bank Holding Company Act or certain
subsidiaries thereof may not sponsor, organize, or control a registered open-end
investment company continuously engaged in the issuance of its shares, such as
the Portfolio. The interpretation does not prohibit a holding company or a
subsidiary thereof from acting as investment advisor and custodian to such an
investment company. The Advisor believes that it may perform the services for
the Portfolio contemplated by the Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent The Advisor from continuing to perform such services for the
Portfolio.
If the Advisor were prohibited from acting as investment advisor to the
Portfolio, it is expected that the Trustees of the Portfolio would recommend to
investors that they approve the Portfolio's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.
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Under separate agreements, Morgan also provides certain financial, fund
accounting and administrative services to the Portfolio. See "Administrative
Services Agent" in Part A above.
CO-ADMINISTRATOR. Under the Portfolio's Co-Administration Agreement
dated August 1, 1996, FDI serves as the Portfolio's Co-Administrator. The Co-
Administration Agreement may be renewed or amended by the Trustees without an
investor vote. The Co-Administration Agreement is terminable at any time without
penalty by a vote of a majority of the Trustees of the Portfolio on not more
than 60 days' written notice nor less than 30 days' written notice to the other
party. The Co-Administrator may, subject to the consent of the Trustees of the
Portfolio, subcontract for the performance of its obligations, provided,
however, that unless the Portfolio expressly agrees in writing, the
Co-Administrator shall be fully responsible for the acts and omissions of any
subcontractor as it would for its own acts or omissions. See "Administrative
Services Agent" below.
For its services under the Co-Administration Agreement, the Portfolio
has agreed to pay FDI fees equal to its allocable share of an annual complex-
wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable
to the Portfolio is based on the ratio of its net assets to the aggregate net
assets of The JPM Pierpont Funds, The JPM Institutional Funds, the Master
Portfolios, and certain other investment companies subject to similar agreements
with FDI.
The following administrative fees were paid by the Portfolio to
Signature Broker-Dealer Services, Inc. ("SBDS") (which provided placement agent
and administrative services to the Portfolio prior to August 1, 1997): For the
fiscal years ended June 30, 1995, 1996 and for the period from July 1, 1996
through July 31, 1996: $7,770, $19,517, and $2,938, respectively.
ADMINISTRATIVE SERVICES AGENT. The Portfolio has entered into a
Restated Administrative Services Agreement (the "Services Agreement") with
Morgan, pursuant to which Morgan is responsible for certain administrative and
related services provided to the Portfolio.
Under the Services Agreement, effective August 1, 1996, the Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and JPM Series Trust in accordance with the
following annual schedule: 0.09% on the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by the Portfolio is determined by the proportionate share
that its net assets bear to the total net assets of The JPM Pierpont Funds, The
JPM Institutional Funds, the Master Portfolios, the other investors in the
Master Portfolios for which Morgan provides similar services and JPM Series
Trust.
Under administrative services agreements in effect with Morgan from
December 29, 1995 through July 31, 1996, the Portfolio paid Morgan a fee equal
to its proportionate share of an annual complex-wide charge. This charge was
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calculated daily based on the aggregate net assets of the Master Portfolios in
accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Portfolio had entered into a financial and fund
accounting services agreement with Morgan, the provisions of which included
certain of the activities described above and, prior to September 1, 1995, also
included reimbursement of usual and customary expenses.
For the fiscal years ended June 30, 1995, 1996, and 1997 the portfolio
paid Morgan $63,153, $45,687, and $89,749, respectively, in administrative
services fees.
CUSTODIAN. State Street Bank and Trust Company ("State Street"), 40
King Street West, Toronto, Ontario, Canada M5H 3Y8, serves as the Portfolio's
custodian and fund accounting agent. Pursuant to the Custodian Contract, State
Street is responsible for maintaining the books of account and records of
portfolio transactions and holding portfolio securities and cash. In the case of
foreign assets held outside the United States, the Custodian employs various
sub-custodians, who were approved by the Trustees of the Portfolio in accordance
with the regulations of the SEC. As Transfer Agent, State Street is responsible
for maintaining account records detailing the ownership of interests in the
Portfolio. The Portfolio is responsible for the fees of State Street as
custodian for the Portfolio. The Custodian maintains portfolio transaction
records, calculates book and tax allocations for the Portfolio, and computes the
value of the interest of each investor.
INDEPENDENT ACCOUNTANTS. The independent accountants of the Portfolio
are Price Waterhouse LLP, 1177 Avenue of the Americas, New York, New York 10036.
Price Waterhouse LLP conducts an annual audit of the financial statements of the
Portfolio, assists in the preparation and/or review of the Portfolio's federal
and state income tax returns and consults with the Portfolio as to matters of
accounting and federal and state income taxation.
EXPENSES. In addition to the fees payable to the service providers
identified above, the Portfolio is responsible for usual and customary expenses
associated with its operations. Such expenses include organization expenses,
legal fees, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Portfolio. Such expenses also include registration fees under
foreign securities laws and brokerage expenses. Under fee arrangements prior to
September 1, 1995, Morgan as service agent was responsible for reimbursements to
the Portfolio for SBDS's fees as administrator and the usual and customary
expenses described above (excluding organization and extraordinary expenses,
custodian fees and brokerage expenses).
Morgan has agreed to reimburse the Portfolio through October 31, 1998
to the extent necessary to maintain the daily total operating expenses of the
Portfolio at no more than the annualized rate of 0.65% of the daily net assets
of the Portfolio. For the fiscal years ended June 30, 1995, 1996 and 1997,
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Morgan reimbursed the Portfolio $385,400, $347,771, and $433,717, respectively.
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES.
The Advisor places orders for the Portfolio for all purchases and sales
of portfolio securities, enters into repurchase agreements and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolio. See Item 13 above.
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of the Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolio in light of facts and circumstances deemed relevant from time to time,
and, in that connection, will receive reports from the Advisor and published
data concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Advisor has allocated
brokerage business in the past include economic statistics and forecasting
services, industry and company analyses, portfolio strategy services,
quantitative data, and consulting services from economists and political
analysts. Research services furnished by brokers are used for the benefit of all
the Advisor's clients and not solely or necessarily for the benefit of the
Portfolio. The Advisor believes that the value of research services received is
not determinable and does not significantly reduce its expenses. The Portfolio
does not reduce its fee to the Advisor by any amount that might be attributable
to the value of such services.
The Portfolio paid the following approximate brokerage commissions for
the fiscal years ended June 30 1995, 1996, and 1997: $145,589, $220,206, and
$145,589, respectively.
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Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Portfolio's portfolio
brokerage transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for the Portfolio, the
commissions, fees or other remuneration received by such affiliates must be
reasonable and fair compared to the commissions, fees, or other remuneration
paid to other brokers in connection with comparable transactions involving
similar securities being purchased or sold on a securities exchange during a
comparable period of time. Furthermore, the Trustees of the Portfolio, including
a majority of the Trustees who are not "interested persons," have adopted
procedures which are reasonably designed to provide that any commissions, fees,
or other remuneration paid to such affiliates are consistent with the foregoing
standard.
The Portfolio's portfolio securities will not be purchased from or
through or sold to or through the Exclusive Placement Agent or Advisor or any
other "affiliated person" (as defined in the 1940 Act), of the Exclusive
Placement Agent or Advisor when such entities are acting as principals, except
to the extent permitted by law. In addition, the Portfolio will not purchase
securities during the existence of any underwriting group relating thereto of
which the Advisor or an affiliate of the Advisor is a member, except to the
extent permitted by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other
customers, including other Portfolios, the Advisor, to the extent permitted by
applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Portfolio. In
some instances, this procedure might adversely affect the Portfolio.
If the Portfolio effects a closing purchase transaction with respect to
an option written by it, normally such transaction will be executed by the same
broker-dealer who executed the sale of the option. The writing of options by the
Portfolio will be subject to limitations established by each of the exchanges
governing the maximum number of options in each class which may be written by a
single investor or group of investors acting in concert, regardless of whether
the options are written on the same or different exchanges or are held or
written in one or more accounts or through one or more brokers. The number of
options which the Portfolio may write may be affected by options written by the
Advisor for other investment advisory clients. An exchange may order the
liquidation of positions found to be in excess of these limits, and it may
impose certain other sanctions.
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ITEM 18. CAPITAL STOCK AND OTHER SECURITIES.
Under the Declaration of Trust, the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon liquidation or dissolution of the Portfolio, investors are entitled to
share pro rata in the Portfolio's net assets available for distribution to its
investors. Investments in the Portfolio have no preference, preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below. Investments in the Portfolio may not be transferred. Certificates
representing an investor's beneficial interest in the Portfolio are issued only
upon the written request of an investor.
Each investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio. Investors in the Portfolio do not have cumulative
voting rights, and investors holding more than 50% of the aggregate beneficial
interest in the Portfolio may elect all of the Trustees if they choose to do so
and in such event the other investors in the Portfolio would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual meetings of investors but the Portfolio will hold special meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor vote. No material amendment may be
made to the Portfolio's Declaration of Trust without the affirmative majority
vote of investors (with the vote of each being in proportion to the amount of
its investment).
The Portfolio may enter into a merger or consolidation, or sell all or
substantially all of its assets, if approved by the vote of two thirds of its
investors (with the vote of each being in proportion to its percentage of the
beneficial interests in the Portfolio), except that if the Trustees recommend
such sale of assets, the approval by vote of a majority of the investors (with
the vote of each being in proportion to its percentage of the beneficial
interests of the Portfolio) will be sufficient. The Portfolio may also be
terminated (i) upon liquidation and distribution of its assets if approved by
the vote of two thirds of its investors (with the vote of each being in
proportion to the amount of its investment) or (ii) by the Trustees by written
notice to its investors.
The Portfolio is organized as a trust under the laws of the State of
New York. Investors in the Portfolio will be held personally liable for its
obligations and liabilities, subject, however, to indemnification by the
Portfolio in the event that there is imposed upon an investor a greater portion
of the liabilities and obligations of the Portfolio than its proportionate
beneficial interest in the Portfolio. The Declaration of Trust also provides
that the Portfolio shall maintain appropriate insurance (for example, fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors, Trustees, officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account of investor liability is limited to circumstances in which both
inadequate insurance existed and the Portfolio itself was unable to meet its
obligations.
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B-33
<PAGE>
The Portfolio's Declaration of Trust further provides that obligations
of the Portfolio are not binding upon the Trustees individually but only upon
the property of the Portfolio and that the Trustees will not be liable for any
action or failure to act, but nothing in the Declaration of Trust protects a
Trustee against any liability to which he would otherwise be subject by reason
of wilful misfeasance, bad faith, gross negligence, or reckless disregard of the
duties involved in the conduct of his office.
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.
Beneficial interests in the Portfolio are issued solely in private
placement transactions that do not involve any "public offering" within the
meaning of Section 4(2) of the 1933 Act.
Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are valued
using prices supplied daily by an independent pricing service or services that
(i) are based on the last sale price on a national securities exchange, or in
the absence of recorded sales, at the readily available closing bid price on
such exchange or at the quoted bid price in the over-the-counter market, if such
exchange or market constitutes the broadest and most representative market for
the security and (ii) in other cases, take into account various factors
affecting market value, including yields and prices of comparable securities,
indication as to value from dealers and general market conditions. If such
prices are not supplied by the Portfolio's independent pricing service, such
securities are priced in accordance with procedures adopted by the Trustees. All
portfolio securities with a remaining maturity of less than 60 days are valued
by the amortized cost method. Because of the large number of municipal bond
issues outstanding and the varying maturity dates, coupons and risk factors
applicable to each issuer's books, no readily available market quotations exist
for most municipal securities.
The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is generally based on the last sale prices
on the New York Stock Exchange at 4:00 P.M. or, in the absence of recorded
sales, at the average of readily available closing bid and asked prices on such
exchange. Securities listed on a foreign exchange are valued at the last quoted
sale price available before the time when net assets are valued. Unlisted
securities are valued at the average of the quoted bid and asked prices in the
over-the-counter market. The value of each security for which readily available
market quotations exist is based on a decision as to the broadest and most
representative market for such security. For purposes of calculating net asset
value per share, all assets and liabilities initially expressed in foreign
currencies will be converted into U.S. dollars at the prevailing market rates
available at the time of valuation.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
P.M., New York time. Stock index futures and related options, which are traded
on commodities exchanges, are valued at their last sales price as of the close
of such commodities exchanges which is currently 4:15 P.M., New York time.
Securities or other assets for which market quotations are not readily
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B-34
<PAGE>
available are valued at fair value in accordance with procedures established by
and under the general supervision and responsibility of the Trustees. Such
procedures include the use of independent pricing services which use prices
based upon yields or prices of securities of comparable quality, coupon,
maturity and type; indications as to values from dealers; and general market
conditions. Short-term investments which mature in 60 days or less are valued at
amortized cost if their original maturity was 60 days or less, or by amortizing
their value on the 61st day prior to maturity, if their original maturity when
acquired by the Portfolio was more than 60 days, unless this is determined not
to represent fair value by the Trustees.
Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading on the New York Stock Exchange
and may also take place on days on which the New York Stock Exchange is closed.
If events materially affecting the value of securities occur between the time
when the exchange on which they are traded closes and the time when the
Portfolio's net asset value is calculated, such securities will be valued at
fair value in accordance with procedures established by and under the general
supervision of the Trustees.
If the Portfolio determines that it would be detrimental to the best
interest of the remaining investors in the Portfolio to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio, in lieu of cash, in
conformity with the applicable rule of the SEC. If interests are redeemed in
kind, the redeeming investor might incur transaction costs in converting the
assets into cash. The method of valuing portfolio securities is described above
and such valuation will be made as of the same time the redemption price is
determined. The Portfolio has elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Portfolio is obligated to redeem interests solely
in cash up to the lesser of $250,000 or 1% of the net asset value of the
Portfolio during any 90 day period for any one investor. The Portfolio will not
redeem in kind except in circumstances in which an investor is permitted to
redeem in kind.
The net asset value of the Portfolio will not be computed on the days
the following legal holidays are observed: New Year's Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day. On days when U.S. trading markets close early in observance of
these holidays, the Portfolio would expect to close for purchases and
withdrawals at the same time. The Portfolio may also close for purchases and
withdrawals at such other times as may be determined by the Trustees to the
extent permitted by applicable law. The days on which net asset value is
determined are the Portfolio's business days.
ITEM 20. TAX STATUS.
The Portfolio is organized as a New York trust. The Portfolio is not
subject to any income or franchise tax in the State of New York. However, each
investor in the Portfolio will be subject to U.S. Federal income tax in the
manner described below on its share (as determined in accordance with the
governing instruments of the Portfolio) of the Portfolio's ordinary income
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<PAGE>
and capital gain in determining its income tax liability. The determination of
such share will be made in accordance with the Internal Revenue Code of 1986, as
amended (the "Code") and regulations promulgated thereunder.
Although, as described above, the Portfolio will not be subject to
federal income tax, it will file appropriate income tax returns.
It is intended that the Portfolio's assets will be managed in such a
way that an investor in the Portfolio will be able to satisfy the requirements
of Subchapter M of the Code. To ensure that investors will be able to satisfy
the requirements of subchapter M, the Portfolio must satisfy certain gross
income and diversification requirements, including, among other things, a
requirement that the Portfolio derive less than 30% of its gross income from the
sale of stock, securities, options, futures or forward contracts held less than
three months. Effective as of July 1, 1998, the 30% of gross income test
described in (b) above will no longer apply to the Fund.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon. Other gains or losses on the sale of securities
will be short-term capital gains or losses. Gains and losses on the sale, lapse
or other termination of options on securities will be treated as gains and
losses from the sale of securities. If an option written by the Portfolio lapses
or is terminated through a closing transaction, such as a repurchase by the
Portfolio of the option from its holder, the Portfolio will realize a short-term
capital gain or loss, depending on whether the premium income is greater or less
than the amount paid by the Portfolio in the closing transaction. If securities
are purchased by the Portfolio pursuant to the exercise of a put option written
by it, the Portfolio will subtract the premium received from its cost basis in
the securities purchased.
Under the Code, gains or losses attributable to disposition of foreign
currency or to foreign currency contracts, or to fluctuations in exchange rates
between the time the Portfolio accrues income or receivables or expenses or
other liabilities denominated in a foreign currency and the time the Portfolio
actually collects such income or pays such liabilities, are treated as ordinary
income or ordinary loss. Similarly, gains or losses on the disposition of debt
securities held by the Portfolio, if any, denominated in foreign currency, to
the extent attributable to fluctuations in exchange rates between the
acquisition and disposition dates are also treated as ordinary income or loss.
Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities. Straddles may also result in the loss of the holding
period of underlying securities for purposes of the 30% of gross income test
described above, and therefore, the Portfolio's ability to enter into forward
currency contracts, options and futures contracts may be limited
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B-36
<PAGE>
under current law. Effective as of July 1, 1998, the 30% of gross income test
described in (b) above will no longer apply to the Fund.
Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each fiscal year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. Any gain or loss recognized on foreign currency contracts will be
treated as ordinary income.
The Portfolio may invest in equity securities of foreign issuers. If
the investors who are U.S. persons purchases shares in certain foreign
investment funds (referred to as passive foreign investment companies ("PFICs")
under the Code), generally would be subject to special rules on any "excess
distribution" from such foreign investment fund or gain from the disposition of
such shares. Under these special rules, (i) the gain or excess distribution
would be allocated ratably over the investor's holding period for such shares,
(ii) the amount allocated to the taxable year in which the gain or excess
distribution was realized would be taxable as ordinary income, (iii) the amount
allocated to each prior year, with certain exceptions, would be subject to tax
at the highest tax rate in effect for that year and (iv) the interest charge
generally applicable to underpayments of tax would be imposed in respect of the
tax attributable to each such year. Alternatively, an investor may, if certain
conditions are met, include in its income each year a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Portfolio.
For taxable years of the Portfolio beginning after 1997, the Portfolio
will be permitted to "mark to market" any marketable stock held by the Portfolio
in a PFIC. If the Portfolio made such an election, the investor in the Portfolio
would include in income each year an amount equal to its share of the excess, if
any, of the fair market value of the PFIC stock as of the close of the taxable
year over the adjusted basis of such stock. The investor would be allowed a
deduction for its share of the excess, if any, of the adjusted basis of the PFIC
stock over its fair market value as of the close of the taxable year, but only
to the extent of any net mark-to-market gains with respect to the stock included
by the investor for prior taxable years.
FOREIGN INVESTORS. It is intended that the Portfolio will conduct its
affairs such that its income and gains will not be effectively connected with
the conduct of a U.S. trade or business. Provided the Portfolio conducts its
affairs in such a manner, allocations of U.S. source dividend income to an
investor who, as to the United States, is a foreign trust, foreign corporation
or other foreign investor will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate), and allocations of portfolio interest (as defined in
the Code) or short term or net long term capital gains to such investors
generally will not be subject to U.S. tax.
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STATE AND LOCAL TAXES. The Portfolio may be subject to state or local
taxes in jurisdictions in which the Portfolio is deemed to be doing business. In
addition, the treatment of the Portfolio and its investors in those states which
have income tax laws might differ from treatment under the federal income tax
laws. Investors should consult their own tax advisors with respect to any state
or local taxes.
FOREIGN TAXES. The Portfolio may be subject to foreign withholding taxes
with respect to income received from sources within foreign countries.
OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise tax in the State of
New York. Investors are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Portfolio.
ITEM 21. UNDERWRITERS.
The placement agent for the Portfolio is FDI, which receives no
additional compensation for serving in this capacity. Investment companies,
insurance company separate accounts, common and commingled trust funds and
similar organizations and entities may continuously invest in the Portfolio.
ITEM 22. CALCULATIONS OF PERFORMANCE DATA.
Not applicable.
ITEM 23. FINANCIAL STATEMENTS.
The Portfolio's June 30, 1997 annual report filed with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder are incorporated
herein by reference (Accession Number 0000912057-97-029860 filed June 30, 1997).
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APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA - Debt rated AAA has the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB - Debt rated BB is regarded as having less near-term vulnerability to
default than other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
B - An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
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Appendix A-1
<PAGE>
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
SHORT-TERM TAX-EXEMPT NOTES
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
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Appendix A-2
<PAGE>
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate
reliance on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial
charges and high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
SHORT-TERM TAX EXEMPT NOTES
MIG-1 The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
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Appendix A-3
<PAGE>
PART C
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(A) FINANCIAL STATEMENTS
The financial statements included in Part B, Item 23 of this
Registration Statement are as follows:
Schedule of Investments at June 30, 1997 Statement of Assets and
Liabilities at June 30, 1997 Statement of Operations for the period
ended June 30, 1997 Statement of Changes in Net Assets Supplementary
Data Notes to Financial Statements at June 30, 1997
(B) EXHIBITS
1 Declaration of Trust of the Registrant.3
2 Amended and Restated By-Laws of the Registrant.2
5 Investment Advisory Agreement between the Registrant and Morgan Guaranty
Trust Company of New York ("Morgan").3
8 Custodian Contract between the Registrant and State Street Bank and
Trust Company ("State Street").3
9(a) Co-Administration Agreement between the Registrant and Funds
Distributor, Inc. dated August 1, 1996.1
9(b) Transfer Agency and Service Agreement between the Registrant and State
Street.3
9(c) Restated Administrative Services Agreement between the Registrant and
Morgan dated August 1, 1996.1
9(d) Amended and Restated Fund Services Agreement between the Registrant and
Pierpont Group, Inc. dated July 11, 1996.1
13 Investment representation letters of initial investors.3
27 Financial Data Schedule.3
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- ---------------------
1 Incorporated herein by reference from Amendment No. 3 to Registrant's
Registration Statement as filed with the SEC on October 9, 1996.
(Accession No.0000912057-96-022355).
2 Incorporated herein by reference from Amendment No. 4 to the
Registrant's Registration Statement as filed with the SEC on May 9,
1997. (Accession No. 0001016964-97-000075).
3 Filed herewith.
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ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
Not applicable.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
TITLE OF CLASS: Beneficial Interests
NUMBER OF RECORD HOLDERS: 2 (as of September 2, 1997)
ITEM 27. INDEMNIFICATION.
Reference is hereby made to Article V of the Registrant's Declaration
of Trust, filed as an Exhibit hereto.
The Trustees and officers of the Registrant and the personnel of the
Registrant's co-administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Morgan is a New York trust company which is a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated. Morgan conducts a general banking and trust
business.
To the knowledge of the Registrant, none of the directors, except those
set forth below, or executive officers of Morgan is or has been during the past
two fiscal years engaged in any other business, profession, vocation or
employment of a substantial nature, except that certain officers and directors
of Morgan also hold various positions with, and engage in business for, J.P.
Morgan & Co. Incorporated, which owns all the outstanding stock of Morgan. Set
forth below are the names, addresses, and principal business of each director of
Morgan who is engaged in another business, profession, vocation or employment of
a substantial nature.
Paul A. Allaire: Chairman and Chief Executive Officer, Xerox Corporation
(office imaging systems). His address is Xerox Corporation, P.O. Box 1600, 800
Long Ridge Road, Stamford, CT 06904.
Riley P. Bechtel: Chairman and Chief Executive Officer, Bechtel Group,
Inc. (architectural design and construction). His address is Bechtel Group,
Inc., P.O. Box 193965, San Francisco, CA 94119-3965.
Martin Feldstein: President and Chief Executive Officer, National Bureau of
Economic Research, Inc. (national research institution). His address is National
Bureau of Economic Research, Inc., 1050 Massachusetts Avenue, Cambridge, MA
02138-5398.
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Ellen V. Futter: President, American Museum of Natural History (not-for-
profit organization). Her address is American Museum of Natural History, Central
Park West at 79th Street, New York, NY 10024.
Hanna H. Gray: President Emeritus and Harry Pratt Judson Distinguished
Service Professor of History, The University of Chicago (academic
institution). Her address is The University of Chicago, Department of History,
1126 East 59th Street, Chicago, IL 60637.
James R. Houghton: Retired Chairman of the Board, Corning Incorporated
(glass products). His address is R.D. #2 Spencer Hill Road, Corning, NY 14830.
James L. Ketelsen: Retired Chairman and Chief Executive Officer,
Tenneco Inc. (oil, pipe-lines, and manufacturing). His address is 10 South
Briar Hollow 7, Houston, TX 77027.
John A. Krol: President and Chief Executive Officer, E.I. du Pont de
Nemours and Company (chemicals and energy company). His address is E.I. du
Pont de Nemours and Company, 1007 Market Street, Wilmington, DE 19898.
Lee R. Raymond: Chairman of the Board and Chief Executive Officer, Exxon
Corporation (oil, natural gas, and other petroleum products). His address is
Exxon Corporation, 5959 Las Colinas Boulevard, Irving, TX 75039-2298.
Richard D. Simmons: Retired; Former President, The Washington Post
Company and International Herald Tribune (newspapers). His address is P.O. Box
242, Sperryville, VA 22740.
Douglas C. Yearley: Chairman, President and Chief Executive Officer,
Phelps Dodge Corporation (chemicals). His address is Phelps Dodge Corporation,
2600 N. Central Avenue, Phoenix, AZ 85004-3014.
ITEM 29. PRINCIPAL UNDERWRITERS.
No applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations:
Morgan Trust Guaranty Company of New York, 60 Wall Street, New York,
New York 10260-0060 or 522 Fifth Avenue, New York, New York 10036 (records
relating to its functions as investment adviser and administrative services
agent).
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 or 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as custodian and fund accounting and transfer
agent).
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Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109 or c/o State Street Cayman Trust Company, Ltd., Elizabethan
Square, Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI (records
relating to its functions as co-administrator and exclusive placement agent).
Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017
(records relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
ITEM 31. MANAGEMENT SERVICES.
Not applicable.
ITEM 32. UNDERTAKINGS.
Not applicable
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SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, the Registrant has duly caused this Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of George Town, Grand Cayman, Cayman Islands, B.W.I., on the 30th day of
September, 1997.
THE DIVERSIFIED PORTFOLIO
By: /S/ LENORE J. MCCABE
-------------------------------------------
Lenore J. McCabe
Assistant Secretary and Assistant Treasurer
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INDEX TO EXHIBITS
EXHIBIT NO.: DESCRIPTION OF EXHIBIT
EX-99.B1 Declaration of Trust, as amended, of the Registrant
EX-99.B5 Investment Advisory Agreement between the Registrant and
Morgan Guaranty Trust Company of New York
EX-99.B8 Custodian Contract between the Registrant and State Street
Bank and Trust Company
EX-99.B9b Transfer Agency and Service Agreement between the Registrant
and State Street Bank and Trust Company
EX-99.B13 Investment representation letters of initial investors
EX-27 Financial Data Schedule
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JPM407
AMENDMENT NO. 2 TO DECLARATION OF TRUST OF
THE DIVERSIFIED PORTFOLIO
DATED AS OF APRIL 13, 1995
The undersigned, being all the Trustees of The Diversified Portfolio, a
trust organized under the laws of the State of New York (the "Trust["]) acting
pursuant to the last paragraph of Section 10.4 of the Declaration of Trust dated
as of January 29, 1993, as amended, hereby amend in its entirety paragraph
Section 6.2 of the Trust's Declaration of Trust as follows:
6.2. Non-Transferability. A Holder may not transfer, sell or exchange its
Interest except as part of a merger or similar plan of reorganization of a
Holder that qualifies under Section 368 of the Code as permitted by the
Trustees.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 13th day of April, 1995. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by all of the
Trustees.
/s/ F.S. Addy /s/ William G. Burns
Frederick S. Addy William G. Burns
/s/ Arthur C. Eschenlauer /s/ Matthew Healey
Arthur C. Eschenlauer Matthew Healey
/s/ Michael P. Mallardi
Michael P. Mallardi
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<PAGE>
AMENDMENT NO. 1 TO DECLARATION OF TRUST OF
THE DIVERSIFIED PORTFOLIO
JUNE 24, 1993, TORONTO, ONTARIO, CANADA
RESOLVED: That pursuant to the last paragraph of Section 10.4 of the
Declaration of Trust dated as of January 29, 1993 or The Diversified Portfolio
(the "Trust"), the Trustees hereby amend in its entirety paragraph (a) of
Section 10.4 of the Trust's Declaration of Trust as follows:
(a) This Declaration may be amended by the vote of Holders of more than
50% of all Interests at any meeting of Holders or by an instrument in writing
without a meeting, executed by a majority of the Trustees and consented to by
the Holders of more than 50% of all Interests. Notwithstanding any other
provision hereof, this Declaration may be amended by an instrument in writing
executed by a majority of the Trustees, and without the vote or consent of
Holders, for any one or more of the following purposes: (i) to change the name
of the Trust, (ii) to supply any omission, or to cure, correct or suppldpnt any
ambiguous, defective or inconsistent provision hereof, (iii) to conform this
Declaration to the requirdpnts of applicable federal law or regulations or the
requirdpnts of the applicable provisions of the Code, (iv) to change the state
or other jurisdiction designated herein as the state or other jurisdiction whose
law shall be the governing law hereof, (v) to effect such changes herein as the
Trustees find to be necessary or appropriate (A) to permit the filing of this
Declaration under the law of such state or other jurisdiction applicable to
trusts or voluntary associations, (B) to permit the Trust to elect to be treated
as a "regulated investment company" under the applicable provisions of the Code,
(C) to permit the Trust to comply with fiscal or other statutory or official
requirdpnts of any government authority, or (D) to permit the transfer of
Interests (or to permit the transfer of any other beneficial interest in or
share of the Trust, however denominated), and (vi) in conjunction with any
amendment contemplated by the foregoing clause (iv) or the foregoing clause (v)
to make any and all such further changes or modifications to this Declaration as
the Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution of any such amendment by a majority of
the Trustees; provided, however, that unless effected in compliance with the
provisions of Section 10.4(b) hereof, no amendment otherwise authorized by this
sentence may be made which would reduce the amount payable with respect to any
Interest upon liquidation of the Trust and; provided, further, that the Trustees
shall not be liable for failing to make any amendment permitted by this Section
10.4(a).
The undersigned have executed this amendment as of the year and date
first written above.
/s/ James B. Craver /s/ Thomas M. Lenz /s/ Andres Saldana
James B. Craver Thomas M. Lenz Andres E. Saldana
As Trustee and not As Trustee and not As Trustee and not
Individually Individually Individually
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<PAGE>
JPM76A
THE DIVERSIFIED PORTFOLIO
--------------------------
DECLARATION OF TRUST
Dated as of January 29, 1993
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<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I--The Trust 1
Section 1.1 Name 1
Section 1.2 Definitions 1
ARTICLE II--Trustees 3
Section 2.1 Number and Qualification 3
Section 2.2 Term and Election 4
Section 2.3 Resignation, Removal and Retirdpnt 4
Section 2.4 Vacancies 5
Section 2.5 Meetings 5
Section 2.6 Officers; Chairman of the Board 6
Section 2.7 By-Laws 6
ARTICLE III--Powers of Trustees 6
Section 3.1 General 6
Section 3.2 Investments 6
Section 3.3 Legal Title 7
Section 3.4 Sale and Increases of Interests 7
Section 3.5 Decreases and Redemptions of Interests 8
Section 3.6 Borrow Money 8
Section 3.7 Delegation; Committees 8
Section 3.8 Collection and Payment 8
Section 3.9 Expenses 8
Section 3.10 Miscellaneous Powers 9
Section 3.11 Further Powers 9
ARTICLE IV--Investment Managdpnt and Administration and Placdpnt
Agent Arrangdpnts 9
Section 4.1 Investment Managdpnt and Other Arrangdpnts 10
Section 4.2 Parties to Contract 10
ARTICLE V--Liability of Holders; Limitations of Liability of Trustees,
Officers, etc. 10
Section 5.1 Liability of Holders; Indemnification 11
Section 5.2 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Third Parties 11
Section 5.3 Limitations of Liability of Trustees,
Officers, Employees, Agents, Independent
Contractors to Trust, Holders, etc. 11
Section 5.4 Mandatory Indemnification 11
i
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<PAGE>
PAGE
Section 5.5 No Bond Required of Trustees 12
Section 5.6 No Duty of Investigation; Notice in
Trust Instruments, etc. 12
Section 5.7 Reliance on Experts, etc. 13
ARTICLE VI--Interests 14
Section 6.1 Interests 14
Section 6.2 Non-Transferability 14
Section 6.3 Register of Interests 14
ARTICLE VII--Increases, Decreases, And Redemptions of Interests 14
ARTICLE VIII--Determination of Book Capital Account Balances,
and Distributions 15
Section 8.1 Book Capital Account Balances 15
Section 8.2 Allocations and Distributions to Holders 15
Section 8.3 Power to Modify Foregoing Procedures 15
ARTICLE IX--Holders 15
Section 9.1 Rights of Holders 15
Section 9.2 Meetings of Holders 16
Section 9.3 Notice of Meetings 16
Section 9.4 Record Date for Meetings, Distributions, etc. 16
Section 9.5 Proxies, etc. 17
Section 9.6 Reports 17
Section 9.7 Inspection of Records 17
Section 9.8 Holder Action by Written Consent 17
Section 9.9 Notices 18
ARTICLE X--Duration; Termination; Amendment; Mergers; Etc. 18
Section 10.1 Duration 18
Section 10.2 Termination 19
Section 10.3 Dissolution 20
Section 10.4 Amendment Procedure 20
Section 10.5 Merger, Consolidation and Sale of Assets 21
Section 10.6 Incorporation 21
ii
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<PAGE>
PAGE
ARTICLE XI--Miscellaneous 22
Section 11.1 Certificate of Designation; Agent for
Service of Process 22
Section 11.2 Governing Law 22
Section 11.3 Counterparts 22
Section 11.4 Reliance by Third Parties 22
Section 11.5 Provisions in Conflict With Law or Regulations 23
iii
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<PAGE>
JPM70
DECLARATION OF TRUST
OF
THE DIVERSIFIED PORTFOLIO
-------------------------------
This DECLARATION OF TRUST of the The dprging Markets Equity
Portfolio is made as of the 29th day of January, 1993 by the parties signatory
hereto, as Trustees (as defined in Section 1.2 hereof).
W I T N E S S E T H:
WHEREAS, the Trustees desire to form a trust fund under the
law of the State of New York for the investment and reinvestment of its assets;
and
WHEREAS, it is proposed that the trust assets be composed of
money and property contributed thereto by the holders of interests in the trust
entitled to ownership rights in the trust;
NOW, THEREFORE, the Trustees hereby declare that they will
hold in trust all money and property contributed to the trust fund and will
manage and dispose of the same for the benefit of the holders of interests in
the Trust and subject to the provisions hereof, to wit:
ARTICLE I
THE TRUST
1.1. NAME. The name of the trust created hereby (the "Trust")
shall be The dprging Markets Equity Portfolio and so far as may be practicable
the Trustees shall conduct the Trust's activities, execute all documents and sue
or be sued under that name, which name (and the word "Trust" wherever
hereinafter used) shall refer to the Trustees as Trustees, and not individually,
and shall not refer to the officers, employees, agents or independent
contractors of the Trust or holders of interests in the Trust.
1.2. DEFINITIONS. As used in this Declaration, the following
terms shall have the following meanings:
The term "Interested Person" shall have the meaning given it
in the 1940 Act.
"BOOK CAPITAL ACCOUNT" shall mean, for any Holder at any time,
the Book Capital Account of the Holder for such day, determined in accordance
with Section 8.1 hereof.
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<PAGE>
"CODE" shall mean the United States Internal Revenue Code of
1986, as amended from time to time, as well as any non-superseded provisions of
the Internal Revenue Code of 1954, as amended (or any corresponding provision or
provisions of succeeding law).
"COMMISSION" shall mean the United States Securities and
Exchange Commission.
"DECLARATION" shall mean this Declaration of Trust as amended
from time to time. References in this Declaration to "DECLARATION", "HEREOF",
"HEREIN" and "HEREUNDER" shall be dedpd to refer to this Declaration rather
than the article or section in which any such word appears.
"FISCAL YEAR" shall mean an annual period determined by the
Trustees which ends on December 31 of each year or on such other day as is
permitted or required by the Code.
"HOLDERS" shall mean as of any particular time all
holders of record of Interests in the Trust.
"INSTITUTIONAL INVESTOR(S)" shall mean any regulated
investment company, segregated asset account, foreign investment company, common
trust fund, group trust or other investment arrangdpnt, whether organized
within or without the United States of America, other than an individual, S
corporation, partnership or grantor trust beneficially owned by any individual,
S corporation or partnership.
"INTEREST(S)" shall mean the interest of a Holder in the
Trust, including all rights, powers and privileges accorded to Holders by this
Declaration, which interest may be expressed as a percentage, determined by
calculating, at such times and on such basis as the Trustees shall from time to
time determine, the ratio of each Holder's Book Capital Account balance to the
total of all Holders' Book Capital Account balances. Reference herein to a
specified percentage of, or fraction of, Interests, means Holders whose combined
Book Capital Account balances represent such specified percentage or fraction of
the combined Book Capital Account balances of all, or a specified group of,
Holders.
"INVESTMENT MANAGER AND ADMINISTRATOR" shall mean any party
furnishing services to the Trust pursuant to any investment managdpnt or
administration contract described in Section 4.1 hereof.
"MAJORITY INTERESTS VOTE" shall mean the vote, at a meeting of
Holders, of (A) 67% or more of the Interests present or represented at such
meeting, if Holders of more than 50% of all Interests are present or represented
by proxy, or (B) more than 50% of all Interests, whichever is less.
2
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<PAGE>
"PERSON" shall mean and include individuals, corporations,
partnerships, trusts, associations, joint ventures and other entities, whether
or not legal entities, and governments and agencies and political subdivisions
thereof.
"REDEMPTION" shall mean the complete withdrawal of an Interest
of a Holder the result of which is to reduce the Book Capital Account balance of
that Holder to zero, and the term "redeem" shall mean to effect a Redemption.
"TRUSTEES" shall mean each signatory to this Declaration, so
long as such signatory shall continue in office in accordance with the terms
hereof, and all other individuals who at the time in question have been duly
elected or appointed and have qualified as Trustees in accordance with the
provisions hereof and are then in office, and reference in this Declaration to a
Trustee or Trustees shall refer to such individual or individuals in their
capacity as Trustees hereunder.
"TRUST PROPERTY" shall mean as of any particular time any and
all property, real or personal, tangible or intangible, which at such time is
owned or held by or for the account of the Trust or the Trustees.
The "1940 ACT" shall mean the United States Investment Company
Act of 1940, as amended from time to time, and the rules and regulations
thereunder.
ARTICLE II
TRUSTEES
2.1. NUMBER AND QUALIFICATION. The number of Trustees shall be
fixed from time to time by action of the Trustees taken as provided in Section
2.5 hereof; provided, however, that the number of Trustees so fixed shall in no
event be less than three or more than 15. Any vacancy created by an increase in
the number of Trustees may be filled by the appointment of an individual having
the qualifications described in this Section 2.1 made by action of the Trustees
taken as provided in Section 2.5 hereof. Any such appointment shall not become
effective, however, until the individual named in the written instrument of
appointment shall have accepted in writing such appointment and agreed in
writing to be bound by the terms of this Declaration. No reduction in the number
of Trustees shall have the effect of removing any Trustee from office. Whenever
a vacancy occurs, until such vacancy is filled as provided in Section 2.4
hereof, the Trustees continuing in office, regardless of their number, shall
have all the powers granted to the Trustees and shall discharge all the duties
imposed upon the Trustees by this Declaration. A Trustee shall be an individual
at least 21 years of age who is not under legal disability.
3
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<PAGE>
2.2. TERM AND ELECTION. Each Trustee named herein, or elected
or appointed prior to the first meeting of Holders, shall (except in the event
of resignations, retirdpnts, removals or vacancies pursuant to Section 2.3 or
Section 2.4 hereof) hold office until a successor to such Trustee has been
elected at such meeting and has qualified to serve as Trustee, as required under
the 1940 Act. Subject to the provisions of Section 16(a) of the 1940 Act and
except as provided in Section 2.3 hereof, each Trustee shall hold office during
the lifetime of the Trust and until its termination as hereinafter provided.
2.3. RESIGNATION, REMOVAL AND RETIRdpNT. Any Trustee may
resign his or her trust (without need for prior or subsequent accounting) by an
instrument in writing executed by such Trustee and delivered or mailed to the
Chairman, if any, the President or the Secretary of the Trust and such
resignation shall be effective upon such delivery, or at a later date according
to the terms of the instrument. Any Trustee may be removed by the affirmative
vote of Holders of two-thirds of the Interests or (provided the aggregate number
of Trustees, after such removal and after giving effect to any appointment made
to fill the vacancy created by such removal, shall not be less than the number
required by Section 2.1 hereof) with cause, by the action of two-thirds of the
remaining Trustees. Removal with cause includes, but is not limited to, the
removal of a Trustee due to physical or mental incapacity or failure to comply
with such written policies as from time to time may be adopted by at least
two-thirds of the Trustees with respect to the conduct of the Trustees and
attendance at meetings. Any Trustee who has attained a mandatory retirdpnt age,
if any, established pursuant to any written policy adopted from time to time by
at least two-thirds of the Trustees shall, automatically and without action by
such Trustee or the remaining Trustees, be dedpd to have retired in accordance
with the terms of such policy, effective as of the date determined in accordance
with such policy. Any Trustee who has become incapacitated by illness or injury
as determined by a majority of the other Trustees, may be retired by written
instrument executed by a majority of the other Trustees, specifying the date of
such Trustee's retirdpnt. Upon the resignation, retirdpnt or removal of a
Trustee, or a Trustee otherwise ceasing to be a Trustee, such resigning,
retired, removed or former Trustee shall execute and deliver such documents as
the remaining Trustees shall require for the purpose of conveying to the Trust
or the remaining Trustees any Trust Property held in the name of such resigning,
retired, removed or former Trustee. Upon the death of any Trustee or upon
removal, retirdpnt or resignation due to any Trustee's incapacity to serve as
Trustee, the legal representative of such deceased, removed, retired or
resigning Trustee shall execute and deliver on behalf of such deceased, removed,
retired or resigning Trustee such documents as the remaining Trustees shall
require for the purpose set forth in the preceding sentence.
4
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<PAGE>
2.4. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
retirdpnt, adjudicated incompetence or other incapacity to perform the duties
of the office, or removal, of a Trustee. No such vacancy shall operate to annul
this Declaration or to revoke any existing agency created pursuant to the terms
of this Declaration. In the case of a vacancy, Holders of at least a majority of
the Interests entitled to vote, acting at any meeting of Holders held in
accordance with Section 9.2 hereof, or, to the extent permitted by the 1940 Act,
a majority vote of the Trustees continuing in office acting by written
instrument or instruments, may fill such vacancy, and any Trustee so elected by
the Trustees or the Holders shall hold office as provided in this Declaration.
2.5. MEETINGS. Meetings of the Trustees shall be held from
time to time upon the call of the Chairman, if any, the President, the
Secretary, an Assistant Secretary or any two Trustees. Regular meetings of the
Trustees may be held without call or notice at a time and place fixed by the
By-Laws or by resolution of the Trustees. Notice of any other meeting shall be
mailed or otherwise given not less than 24 hours before the meeting but may be
waived in writing by any Trustee either before or after such meeting. The
attendance of a Trustee at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Trustee attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. The Trustees may act with
or without a meeting. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in this Declaration, any
action of the Trustees may be taken at a meeting by vote of a majority of the
Trustees present (a quorum being present) or without a meeting by written
consent of a majority of the Trustees.
Any committee of the Trustees, including an executive
committee, if any, may act with or without a meeting. A quorum for all meetings
of any such committee shall be a majority of the members thereof. Unless
provided otherwise in this Declaration, any action of any such committee may be
taken at a meeting by vote of a majority of the members present (a quorum being
present) or without a meeting by written consent of a majority of the members.
With respect to actions of the Trustees and any committee of
the Trustees, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes under
this Section 2.5 and shall be entitled to vote to the extent permitted by the
1940 Act.
All or any one or more Trustees may participate in a meeting
of the Trustees or any committee thereof by means of a conference telephone or
similar communications equipment by means of which all individuals participating
in the meeting can hear each
5
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<PAGE>
other and participation in a meeting by means of such communications equipment
shall constitute presence in person at such meeting.
2.6. OFFICERS; CHAIRMAN OF THE BOARD. The Trustees shall, from
time to time, elect a President, a Secretary and a Treasurer. The Trustees may
elect or appoint, from time to time, a Chairman of the Board who shall preside
at all meetings of the Trustees and carry out such other duties as the Trustees
may designate. The Trustees may elect or appoint or authorize the President to
appoint such other officers, agents or independent contractors with such powers
as the Trustees may deem to be advisable. The Chairman, if any, shall be and
each other officer may, but need not, be a Trustee.
2.7. BY-LAWS. The Trustees may adopt and, from time to
time, amend or repeal By-Laws for the conduct of the business of the Trust.
ARTICLE III
POWERS OF TRUSTEES
3.1. GENERAL. The Trustees shall have exclusive and absolute
control over the Trust Property and over the business of the Trust to the same
extent as if the Trustees were the sole owners of the Trust Property and such
business in their own right, but with such powers of delegation as may be
permitted by this Declaration. The Trustees may perform such acts as in their
sole discretion they deem proper for conducting the business of the Trust. The
enumeration of or failure to mention any specific power herein shall not be
construed as limiting such exclusive and absolute control. The powers of the
Trustees may be exercised without order of or resort to any court.
3.2. INVESTMENTS. The Trustees shall have power to:
(a) conduct, operate and carry on the business of
an investment company;
(b) subscribe for, invest in, reinvest in, purchase
or otherwise acquire, hold, pledge, sell, assign, transfer, exchange, distribute
or otherwise deal in or dispose of United States and foreign currencies and
related instruments including forward contracts, and securities, including
common and preferred stock, warrants, bonds, debentures, time notes and all
other evidences of indebtedness, negotiable or non-negotiable instruments,
obligations, certificates of deposit or indebtedness, commercial paper,
repurchase agredpnts, reverse repurchase agredpnts, convertible securities,
forward contracts, options, futures contracts, and other securities, including,
without limitation, those issued, guaranteed or sponsored by any state,
6
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<PAGE>
territory or possession of the United States and the District of Columbia and
their political subdivisions, agencies and instrumentalities, or by the United
States Government, any foreign government, or any agency, instrumentality or
political subdivision of the United States Government or any foreign government,
or any international instrumentality, or by any bank, savings institution,
corporation or other business entity organized under the laws of the United
States or under any foreign laws; and to exercise any and all rights, powers and
privileges of ownership or interest in respect of any and all such investments
of any kind and description, including, without limitation, the right to consent
and otherwise act with respect thereto, with power to designate one or more
Persons to exercise any of such rights, powers and privileges in respect of any
of such investments; and the Trustees shall be dedpd to have the foregoing
powers with respect to any additional instruments in which the Trustees may
determine to invest.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
3.3. LEGAL TITLE. Legal title to all Trust Property shall be
vested in the Trustees as joint tenants except that the Trustees shall have the
power to cause legal title to any Trust Property to be held by or in the name of
one or more of the Trustees, or in the name of the Trust, or in the name or
nominee name of any other Person on behalf of the Trust, on such terms as the
Trustees may determine.
The right, title and interest of the Trustees in the Trust
Property shall vest automatically in each individual who may hereafter become a
Trustee upon his due election and qualification. Upon the resignation, removal
or death of a Trustee, such resigning, removed or deceased Trustee shall
automatically cease to have any right, title or interest in any Trust Property,
and the right, title and interest of such resigning, removed or deceased Trustee
in the Trust Property shall vest automatically in the remaining Trustees. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents have been executed and delivered.
3.4. SALE AND INCREASES OF INTERESTS. The Trustees, in
their discretion, may, from time to time, without a vote of the Holders,
permit any Institutional Investor to purchase an Interest, or increase its
Interest, for such type of consideration, including cash or property, at such
time or times (including, without limitation, each business day), and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of, liabilities) and businesses. Individuals,
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<PAGE>
S corporations, partnerships and grantor trusts that are beneficially owned by
any individual, S corporation or partnership may not purchase Interests. A
Holder which has rededpd its Interest may not be permitted to purchase an
Interest until the later of 60 calendar days after the date of such Redemption
or the first day of the Fiscal Year next succeeding the Fiscal Year during which
such Redemption occurred.
3.5 DECREASES AND REDEMPTIONS OF INTERESTS. Subject to Article
VII hereof, the Trustees, in their discretion, may, from time to time, without a
vote of the Holders, permit a Holder to redeem its Interest, or decrease its
Interest, for either cash or property, at such time or times (including, without
limitation, each business day), and on such terms as the Trustees may deem best.
3.6. BORROW MONEY. The Trustees shall have power to borrow
money or otherwise obtain credit and to secure the same by mortgaging, pledging
or otherwise subjecting as security the assets of the Trust, including the
lending of portfolio securities, and to endorse, guarantee, or undertake the
performance of any obligation, contract or engagdpnt of any other Person.
3.7. DELEGATION; COMMITTEES. The Trustees shall have power,
consistent with their continuing exclusive and absolute control over the Trust
Property and over the business of the Trust, to delegate from time to time to
such of their number or to officers, employees, agents or independent
contractors of the Trust the doing of such things and the execution of such
instruments in either the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient.
3.8. COLLECTION AND PAYMENT. The Trustees shall have power to
collect all property due to the Trust; and to pay all claims, including taxes,
against the Trust Property; to prosecute, defend, compromise or abandon any
claims relating to the Trust or the Trust Property; to foreclose any security
interest securing any obligation, by virtue of which any property is owed to the
Trust; and to enter into releases, agredpnts and other instruments.
3.9. EXPENSES. The Trustees shall have power to incur and pay
any expenses which in the opinion of the Trustees are necessary or incidental to
carry out any of the purposes of this Declaration, and to pay reasonable
compensation from the Trust Property to themselves as Trustees. The Trustees
shall fix the compensation of all officers, employees and Trustees. The Trustees
may pay themselves such compensation for special services, including legal and
brokerage services, as they in good faith may deem reasonable, and reimbursdpnt
for expenses reasonably incurred by themselves on behalf of the Trust.
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<PAGE>
3.10. MISCELLANEOUS POWERS. The Trustees shall have power to:
(a) employ or contract with such Persons as the Trustees may deem appropriate
for the transaction of the business of the Trust and terminate such employees or
contractual relationships as they consider appropriate; (b) enter into joint
ventures, partnerships and any other combinations or associations; (c) purchase,
and pay for out of Trust Property, insurance policies insuring the Investment
Manager and Administrator, placdpnt agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust against all claims
arising by reason of holding any such position or by reason of any action taken
or omitted by any such Person in such capacity, whether or not the Trust would
have the power to indemnify such Person against such liability; (d) establish
pension, profit-sharing and other retirdpnt, incentive and benefit plans for
the Trustees, officers, employees or agents of the Trust; (e) make donations,
irrespective of benefit to the Trust, for charitable, religious, educational,
scientific, civic or similar purposes; (f) to the extent permitted by law,
indemnify any Person with whom the Trust has dealings, including the Investment
Manager and Administrator, placdpnt agent, Holders, Trustees, officers,
employees, agents or independent contractors of the Trust, to such extent as the
Trustees shall determine; (g) guarantee indebtedness or contractual obligations
of others; (h) determine and change the Fiscal Year of the Trust and the method
by which its accounts shall be kept; and (i) adopt a seal for the Trust, but the
absence of such a seal shall not impair the validity of any instrument executed
on behalf of the Trust.
3.11. FURTHER POWERS. The Trustees shall have power to conduct
the business of the Trust and carry on its operations in any and all of its
branches and maintain offices, whether within or without the State of New York,
in any and all states of the United States of America, in the District of
Columbia, and in any and all commonwealths, territories, dependencies, colonies,
possessions, agencies or instrumentalities of the United States of America and
of foreign governments, and to do all such other things and execute all such
instruments as they deem necessary, proper, appropriate or desirable in order to
promote the interests of the Trust although such things are not herein
specifically mentioned. Any determination as to what is in the interests of the
Trust which is made by the Trustees in good faith shall be conclusive. In
construing the provisions of this Declaration, the presumption shall be in favor
of a grant of power to the Trustees. The Trustees shall not be required to
obtain any court order in order to deal with Trust Property.
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<PAGE>
ARTICLE IV
INVESTMENT MANAGdpNT AND ADMINISTRATION
AND PLACdpNT AGENT ARRANGdpNTS
4.1. INVESTMENT MANAGdpNT AND OTHER ARRANGdpNTS. The
Trustees may in their discretion, from time to time, enter into investment
managdpnt and administration contracts or placdpnt agent agredpnts whereby
the other party to such contract or agredpnt shall undertake to furnish the
Trustees such investment managdpnt and administration, placdpnt agent and/or
other services as the Trustees shall, from time to time, consider appropriate or
desirable and all upon such terms and conditions as the Trustees may in their
sole discretion determine. Notwithstanding any provision of this Declaration,
the Trustees may authorize any Investment Manager and Administrator (subject to
such general or specific instructions as the Trustees may, from time to time,
adopt) to effect purchases, sales, loans or exchanges of Trust Property on
behalf of the Trustees or may authorize any officer, employee or Trustee to
effect such purchases, sales, loans or exchanges pursuant to recommendations of
any such Investment Manager and Administrator (all without any further action by
the Trustees). Any such purchase, sale, loan or exchange shall be dedpd to have
been authorized by the Trustees.
4.2. PARTIES TO CONTRACT. Any contract of the character
described in Section 4.1 hereof or in the By-Laws of the Trust may be entered
into with any corporation, firm, trust or association, although one or more of
the Trustees or officers of the Trust may be an officer, director, Trustee,
shareholder or member of such other party to the contract, and no such contract
shall be invalidated or rendered voidable by reason of the existence of any such
relationship, nor shall any individual holding such relationship be liable
merely by reason of such relationship for any loss or expense to the Trust under
or by reason of any such contract or accountable for any profit realized
directly or indirectly therefrom, provided that the contract when entered into
was reasonable and fair and not inconsistent with the provisions of this Article
IV or the By-Laws of the Trust. The same Person may be the other party to one or
more contracts entered into pursuant to Section 4.1 hereof or the By-Laws of the
Trust, and any individual may be financially interested or otherwise affiliated
with Persons who are parties to any or all of the contracts mentioned in this
Section 4.2 or in the By-Laws of the Trust.
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ARTICLE V
LIABILITY OF HOLDERS; LIMITATIONS OF
LIABILITY OF TRUSTEES, OFFICERS ETC.
5.1. LIABILITY OF HOLDERS; INDEMNIFICATION. Each Holder shall
be jointly and severally liable (with rights of contribution inter se in
proportion to their respective Interests in the Trust) for the liabilities and
obligations of the Trust in the event that the Trust fails to satisfy such
liabilities and obligations; provided, however, that, to the extent assets are
available in the Trust, the Trust shall indemnify and hold each Holder harmless
from and against any claim or liability to which such Holder may become subject
by reason of being or having been a Holder to the extent that such claim or
liability imposes on the Holder an obligation or liability which, when compared
to the obligations and liabilities imposed on other Holders, is greater than
such Holder's Interest (proportionate share), and shall reimburse such Holder
for all legal and other expenses reasonably incurred by such Holder in
connection with any such claim or liability. The rights accruing to a Holder
under this Section 5.1 shall not exclude any other right to which such Holder
may be lawfully entitled, nor shall anything contained herein restrict the right
of the Trust to indemnify or reimburse a Holder in any appropriate situation
even though not specifically provided herein. Notwithstanding the
indemnification procedure described above, it is intended that each Holder shall
remain jointly and severally liable to the Trust's creditors as a legal matter.
5.2. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS INDEPENDENT CONTRACTORS TO THIRD PARTIES. No Trustee, officer,
employee, agent or independent contractor (except in the case of an agent or
independent contractor to the extent expressly provided by written contract) of
the Trust shall be subject to any personal liability whatsoever to any Person,
other than the Trust or the Holders, in connection with Trust Property or the
affairs of the Trust; and all such Persons shall look solely to the Trust
Property for satisfaction of claims of any nature against a Trustee, officer,
employee, agent or independent contractor (except in the case of an agent or
independent contractor to the extent expressly provided by written contract) of
the Trust arising in connection with the affairs of the Trust.
5.3. LIMITATIONS OF LIABILITY OF TRUSTEES, OFFICERS,
EMPLOYEES, AGENTS, INDEPENDENT CONTRACTORS TO TRUST, HOLDERS, ETC. No Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust shall be liable to the Trust or the Holders for any
action or failure to act (including, without limitation, the failure to compel
in any way any former or acting Trustee to redress any breach of trust)
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except for such Person's own bad faith, willful misfeasance, gross negligence or
reckless disregard of such Person's duties.
5.4. MANDATORY INDEMNIFICATION. The Trust shall indemnify, to
the fullest extent permitted by law (including the 1940 Act), each Trustee,
officer, employee, agent or independent contractor (except in the case of an
agent or independent contractor to the extent expressly provided by written
contract) of the Trust (including any Person who serves at the Trust's request
as a director, officer or trustee of another organization in which the Trust has
any interest as a shareholder, creditor or otherwise) against all liabilities
and expenses (including amounts paid in satisfaction of judgments, in
compromise, as fines and penalties, and as counsel fees) reasonably incurred by
such Person in connection with the defense or disposition of any action, suit or
other proceeding, whether civil or criminal, in which such Person may be
involved or with which such Person may be threatened, while in office or
thereafter, by reason of such Person being or having been such a Trustee,
officer, employee, agent or independent contractor, except with respect to any
matter as to which such Person shall have been adjudicated to have acted in bad
faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties; provided, however, that as to any matter disposed of by a
compromise payment by such Person, pursuant to a consent decree or otherwise, no
indemnification either for such payment or for any other expenses shall be
provided unless there has been a determination that such Person did not engage
in willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such Person's office by the court or other
body approving the settldpnt or other disposition or by a reasonable
determination, based upon a review of readily available facts (as opposed to a
full trial-type inquiry), that such Person did not engage in such conduct by
written opinion from independent legal counsel approved by the Trustees. The
rights accruing to any Person under these provisions shall not exclude any other
right to which such Person may be lawfully entitled; provided that no Person may
satisfy any right of indemnity or reimbursdpnt granted in this Section 5.4 or
in Section 5.2 hereof or to which such Person may be otherwise entitled except
out of the Trust Property. The Trustees may make advance payments in connection
with indemnification under this Section 5.4, provided that the indemnified
Person shall have given a written undertaking to reimburse the Trust in the
event it is subsequently determined that such Person is not entitled to such
indemnification.
5.5. NO BOND REQUIRED OF TRUSTEES. No Trustee shall, as
such, be obligated to give any bond or surety or other security for the
performance of any of such Trustee's duties hereunder.
5.6. NO DUTY OF INVESTIGATION; NOTICE IN TRUST INSTRUMENTS,
ETC. No purchaser, lender or other Person dealing with any Trustee, officer,
employee, agent or independent
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contractor of the Trust shall be bound to make any inquiry concerning the
validity of any transaction purporting to be made by such Trustee, officer,
employee, agent or independent contractor or be liable for the application of
money or property paid, loaned or delivered to or on the order of such Trustee,
officer, employee, agent or independent contractor. Every obligation, contract,
instrument, certificate or other interest or undertaking of the Trust, and every
other act or thing whatsoever executed in connection with the Trust shall be
conclusively taken to have been executed or done by the executors thereof only
in their capacity as Trustees, officers, employees, agents or independent
contractors of the Trust. Every written obligation, contract, instrument,
certificate or other interest or undertaking of the Trust made or sold by any
Trustee, officer, employee, agent or independent contractor of the Trust, in
such capacity, shall contain an appropriate recital to the effect that the
Trustee, officer, employee, agent or independent contractor of the Trust shall
not personally be bound by or liable thereunder, nor shall resort be had to
their private property for the satisfaction of any obligation or claim
thereunder, and appropriate references shall be made therein to the Declaration,
and may contain any further recital which they may deem appropriate, but the
omission of such recital shall not operate to impose personal liability on any
Trustee, officer, employee, agent or independent contractor of the Trust.
Subject to the provisions of the 1940 Act, the Trust may maintain insurance for
the protection of the Trust Property, the Holders, and the Trustees, officers,
employees, agents and independent contractors of the Trust in such amount as the
Trustees shall deem adequate to cover possible tort liability, and such other
insurance as the Trustees in their sole judgment shall deem advisable.
5.7. RELIANCE ON EXPERTS, ETC. Each Trustee, officer,
employee, agent or independent contractor of the Trust shall, in the performance
of such Person's duties, be fully and completely justified and protected with
regard to any act or any failure to act resulting from reliance in good faith
upon the books of account or other records of the Trust (whether or not the
Trust would have the power to indemnify such Persons against such liability),
upon an opinion of counsel, or upon reports made to the Trust by any of its
officers or employees or by any Investment Manager and Administrator,
accountant, appraiser or other experts or consultants selected with reasonable
care by the Trustees, officers or employees of the Trust, regardless of whether
such counsel or expert may also be a Trustee.
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ARTICLE VI
Interests
6.1. Interests. The beneficial interest in the Trust Property
shall consist of non-transferable Interests except as provided in Section 6.2
hereof. The Interests shall be personal property giving only the rights in this
Declaration specifically set forth. The value of an Interest shall be equal to
the Book Capital Account balance of the Holder of the Interest.
6.2. Non - Transferability. A Holder may not transfer,
sell or exchange its Interest except as part of a merger or similar plan of
reorganization of a Holder as permitted by the Trustees.
6.3. Register of Interests. A register shall be kept at the
Trust under the direction of the Trustees which shall contain the name, address
and Book Capital Account balance of each Holder. Such register shall be
conclusive as to the identity of the Holders. No Holder shall be entitled to
receive payment of any distribution, nor to have notice given to it as herein
provided, until it has given its address to such officer or agent of the Trust
as is keeping such register for entry thereon.
ARTICLE VII
INCREASES, DECREASES AND REDEMPTIONS OF INTERESTS
Subject to applicable law, to the provisions of this
Declaration and to such restrictions as may from time to time be adopted by the
Trustees, each Holder shall have the right to vary its investment in the Trust
at any time without limitation by increasing (through a capital contribution) or
decreasing (through a capital withdrawal) or by a Redemption of its Interest. An
increase in the investment of a Holder in the Trust shall be reflected as an
increase in the Book Capital Account balance of that Holder and a decrease in
the investment of a Holder in the Trust or the Redemption of the Interest of a
Holder shall be reflected as a decrease in the Book Capital Account balance of
that Holder. The Trust shall, upon appropriate and adequate notice from any
Holder increase, decrease or redeem such Holder's Interest for an amount
determined by the application of a formula adopted for such purpose by
resolution of the Trustees; provided that (a) the amount received by the Holder
upon any such decrease or Redemption shall not exceed the decrease in the
Holder's Book Capital Account balance effected by such decrease or Redemption of
its Interest, and (b) if so authorized by the Trustees, the Trust may, at any
time and from time to time, charge fees for effecting any such decrease or
Redemption, at such rates as the Trustees may establish, and may, at any time
and from time to time, suspend such right of decrease or Redemption. The
procedures for effecting
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decreases or Redemptions shall be as determined by the Trustees from time to
time.
ARTICLE VIII
DETERMINATION OF BOOK CAPITAL ACCOUNT
BALANCES AND DISTRIBUTIONS
8.1. BOOK CAPITAL ACCOUNT BALANCES. The Book Capital Account
balance of each Holder shall be determined on such days and at such time or
times as the Trustees may determine. The Trustees shall adopt resolutions
setting forth the method of determining the Book Capital Account balance of each
Holder. The power and duty to make calculations pursuant to such resolutions may
be delegated by the Trustees to the Investment Manager and Administrator,
custodian, or such other Person as the Trustees may determine. Upon the
Redemption of an Interest, the Holder of that Interest shall be entitled to
receive the balance of its Book Capital Account in cash or in kind. Except as
provided in Section 6.2, a holder may not transfer, sell or exchange its Book
Capital Account balance.
8.2. ALLOCATIONS AND DISTRIBUTIONS TO HOLDERS. The Trustees
shall, in compliance with the Code, the 1940 Act and generally accepted
accounting principles, establish the procedures by which the Trust shall make
(i) the allocation of unrealized gains and losses, taxable income and tax loss,
and profit and loss, or any item or items thereof, to each Holder, (ii) the
payment of distributions, if any, to Holders, and (iii) upon liquidation, the
final distribution of items of taxable income and expense. Such procedures shall
be set forth in writing and be furnished to the Trust's accountants. The
Trustees may amend the procedures adopted pursuant to this Section 8.2 from time
to time. The Trustees may retain from the net profits such amount as they may
deem necessary to pay the liabilities and expenses of the Trust, to meet
obligations of the Trust, and as they may deem desirable to use in the conduct
of the affairs of the Trust or to retain for future requirdpnts or extensions
of the business.
8.3. POWER TO MODIFY FOREGOING PROCEDURES. Notwithstanding any
of the foregoing provisions of this Article VIII, the Trustees may prescribe, in
their absolute discretion, such other bases and times for determining the net
income of the Trust, the allocation of income of the Trust, the Book Capital
Account balance of each Holder, or the payment of distributions to the Holders
as they may deem necessary or desirable to enable the Trust to comply with any
provision of the 1940 Act or any order of exemption issued by the Commission or
with the Code.
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ARTICLE IX
HOLDERS
9.1. RIGHTS OF HOLDERS. The ownership of the Trust Property
and the right to conduct any business described herein are vested exclusively in
the Trustees, and the Holders shall have no right or title therein other than
the beneficial interest conferred by their Interests and they shall have no
power or right to call for any partition or division of any Trust Property.
9.2. MEETINGS OF HOLDERS. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests, such request specifying the purpose or purposes for which such
meeting is to be called. Any such meeting shall be held within or without the
State of New York and within or without the United States of America on such day
and at such time as the Trustees shall designate. Holders of one-third of the
Interests, present in person or by proxy, shall constitute a quorum for the
transaction of any business, except as may otherwise be required by the 1940
Act, other applicable law, this Declaration or the By-Laws of the Trust. If a
quorum is present at a meeting, an affirmative vote of the Holders present, in
person or by proxy, holding more than 50% of the total Interests of the Holders
present, either in person or by proxy, at such meeting constitutes the action of
the Holders, unless a greater number of affirmative votes is required by the
1940 Act, other applicable law, this Declaration or the By-Laws of the Trust.
All or any one of more Holders may participate in a meeting of Holders by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other and participation
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting.
9.3. NOTICE OF MEETINGS. Notice of each meeting of Holders,
stating the time, place and purposes of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
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9.4. RECORD DATE FOR MEETINGS, DISTRIBUTIONS, ETC. For the
purpose of determining the Holders who are entitled to notice of and to vote at
any meeting, or to participate in any distribution, or for the purpose of any
other action, the Trustees may from time to time fix a date, not more than 90
days prior to the date of any meeting of Holders or the payment of any
distribution or the taking of any other action, as the case may be, as a record
date for the determination of the Persons to be treated as Holders for such
purpose.
9.5. PROXIES, ETC. At any meeting of Holders, any Holder
entitled to vote thereat may vote by proxy, provided that no proxy shall be
voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote is to be taken. A
proxy may be revoked by a Holder at any time before it has been exercised by
placing on file with the Secretary, or with such other officer or agent of the
Trust as the Secretary may direct, a later dated proxy or written revocation.
Pursuant to a resolution of a majority of the Trustees, proxies may be solicited
in the name of the Trust or of one or more Trustees or of one or more officers
of the Trust. Only Holders on the record date shall be entitled to vote. Each
such Holder shall be entitled to a vote proportionate to its Interest. When an
Interest is held jointly by several Persons, any one of them may vote at any
meeting in person or by proxy in respect of such Interest, but if more than one
of them is present at such meeting in person or by proxy, and such joint owners
or their proxies so present disagree as to any vote to be cast, such vote shall
not be received in respect of such Interest. A proxy purporting to be executed
by or on behalf of a Holder shall be dedpd valid unless challenged at or prior
to its exercise, and the burden of proving invalidity shall rest on the
challenger.
9.6. REPORTS. The Trustees shall cause to be prepared and
furnished to each Holder, at least annually as of the end of each Fiscal Year, a
report of operations containing a balance sheet and a statdpnt of income of the
Trust prepared in conformity with generally accepted accounting principles and
an opinion of an independent public accountant on such financial statdpnts. The
Trustees shall, in addition, furnish to each Holder at least semi-annually
interim reports of operations containing an unaudited balance sheet as of the
end of such period and an unaudited statdpnt of income for the period from the
beginning of the then-current Fiscal Year to the end of such period.
9.7. INSPECTION OF RECORDS. The records of the Trust
shall be open to inspection by Holders during normal business hours for any
purpose not harmful to the Trust.
9.8. HOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken by Holders may be taken without a meeting if Holders
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<PAGE>
of all Interests entitled to vote consent to the action in writing and the
written consents are filed with the records of the meetings of Holders. Such
consents shall be treated for all purposes as a vote taken at a meeting of
Holders. Each such written consent shall be executed by or on behalf of the
Holder delivering such consent and shall bear the date of such execution. No
such written consent shall be effective to take the action referred to therein
unless, within one year of the earliest dated consent, written consents executed
by a sufficient number of Holders to take such action are filed with the records
of the meetings of Holders.
9.9. NOTICES. Any and all communications, including any
and all notices to which any Holder may be entitled, shall be dedpd duly
served or given if mailed, postage prepaid, addressed to a Holder at its
last known address as recorded on the register of the Trust.
ARTICLE X
DURATION; TERMINATION;
AMENDMENT; MERGERS; ETC.
10.1. Duration. Subject to possible termination or dissolution
in accordance with the provisions of Section 10.2 and Section 10.3 hereof,
respectively, the Trust created hereby shall continue until the expiration of 20
years after the death of the last survivor of the initial Trustees named herein
and the following named persons:
<TABLE>
<CAPTION>
Name Address Date of Birth
<S> <C> <C>
Nicole Catherine Rumery 18 Rio Vista Street 12/21/91
North Billerica, MA 01862
Nelson Stewart Ruble 65 Duck Pond Road 04/10/91
Glen Cove, NY 11542
Shelby Sara Wyetzner 8 Oak Brook Lane 10/18/90
Merrick, NY 11566
Amanda Jehan Sher Coolidge
483 Pleasant Street, #9 08/16/89
Belmont, MA 02178
David Cornelius Johnson 752 West End Avenue, Apt. 10J 05/02/89
New York, NY 10025
Conner Leahy McCabe 100 Parkway Road, Apt. 3C 02/22/89
Bronxville, NY 10708
Andrea Hellegers 530 East 84th Street, Apt. 5H 12/22/88
</TABLE>
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<TABLE>
<S> <C> <C>
New York, NY 10028
Emilie Blair Ruble 65 Duck Pond Road 02/24/89
Glen Cove, NY 11542
Brian Patrick Lyons 152-48 Jewel Avenue 01/20/89
Flushing, NY 11367
Caroline Bolger Cima 11 Beechwood Lane 12/23/88
Scarsdale, NY 10583
Katherine Driscoll Cima 11 Beechwood Lane 04/05/92
Scarsdale, NY 10583
</TABLE>
10.2. TERMINATION.
(a) The Trust may be terminated (i) by the
affirmative vote of Holders of not less than two-thirds of all Interests at any
meeting of Holders or by an instrument in writing without a meeting, executed by
a majority of the Trustees and consented to by Holders of not less than
two-thirds of all Interests, or (ii) by the Trustees by written notice to the
Holders. Upon any such termination,
(i) the Trust shall carry on no business except for
the purpose of winding up its affairs;
(ii) the Trustees shall proceed to wind up the
affairs of the Trust and all of the powers of the Trustees under this
Declaration shall continue until the affairs of the Trust have been
wound up, including the power to fulfill or discharge the contracts of
the Trust, collect the assets of the Trust, sell, convey, assign,
exchange or otherwise dispose of all or any part of the Trust Property
to one or more Persons at public or private sale for consideration
which may consist in whole or in part of cash, securities or other
property of any kind, discharge or pay the liabilities of the Trust,
and do all other acts appropriate to liquidate the business of the
Trust; provided that any sale, conveyance, assignment, exchange or
other disposition of all or substantially all the Trust Property shall
require approval of the principal terms of the transaction and the
nature and amount of the consideration by the vote of Holders holding
more than 50% of all Interests; and
(iii) after paying or adequately providing for the
payment of all liabilities, and upon receipt of such releases,
indemnities and refunding agredpnts as they deem necessary for their
protection, the Trustees shall distribute the remaining Trust Property,
in cash or in kind or partly each, among the Holders according to their
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respective rights as set forth in the procedures established pursuant
to Section 8.2 hereof.
(b) Upon termination of the Trust and distribution
to the Holders as herein provided, a majority of the Trustees shall execute and
file with the records of the Trust an instrument in writing setting forth the
fact of such termination and distribution. Upon termination of the Trust, the
Trustees shall thereupon be discharged from all further liabilities and duties
hereunder, and the rights and interests of all Holders shall thereupon cease.
10.3. DISSOLUTION. Upon the bankruptcy of any Holder, or upon
the Redemption of any Interest, the Trust shall be dissolved effective 120 days
after the event. However, the Holders (other than such bankrupt or redeeming
Holder) may, by a unanimous affirmative vote at any meeting of such Holders or
by an instrument in writing without a meeting executed by a majority of the
Trustees and consented to by all such Holders, agree to continue the business of
the Trust even if there has been such a dissolution.
10.4. AMENDMENT PROCEDURE.
(a) This Declaration may be amended by the vote of
Holders of more than 50% of all Interests at any meeting of Holders or by an
instrument in writing without a meeting, executed by a majority of the Trustees
and consented to by the Holders of more than 50% of all Interests.
Notwithstanding any other provision hereof, this Declaration may be amended by
an instrument in writing executed by a majority of the Trustees, and without the
vote or consent of Holders, for any one or more of the following purposes: (i)
to change the name of the Trust, (ii) to supply any omission, or to cure,
correct or suppldpnt any ambiguous, defective or inconsistent provision hereof,
(iii) to conform this Declaration to the requirdpnts of applicable federal law
or regulations or the requirdpnts of the applicable provisions of the Code,
(iv) to change the state or other jurisdiction designated herein as the state or
other jurisdiction whose law shall be the governing law hereof, (v) to effect
such changes herein as the Trustees find to be necessary or appropriate (A) to
permit the filing of this Declaration under the law of such state or other
jurisdiction applicable to trusts or voluntary associations, (B) to permit the
Trust to elect to be treated as a "regulated investment company" under the
applicable provisions of the Code, or (C) to permit the transfer of Interests
(or to permit the transfer of any other beneficial interest in or share of the
Trust, however denominated), and (vi) in conjunction with any amendment
contemplated by the foregoing clause (iv) or the foregoing clause (v) to make
any and all such further changes or modifications to this Declaration as the
Trustees find to be necessary or appropriate, any finding of the Trustees
referred to in the foregoing clause (v) or the foregoing clause (vi) to be
conclusively evidenced by the execution
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<PAGE>
of any such amendment by a majority of the Trustees; provided, however, that
unless effected in compliance with the provisions of Section 10.4(b) hereof, no
amendment otherwise authorized by this sentence may be made which would reduce
the amount payable with respect to any Interest upon liquidation of the Trust
and; provided, further, that the Trustees shall not be liable for failing to
make any amendment permitted by this Section 10.4(a).
(b) No amendment may be made under Section 10.4(a)
hereof which would change any rights with respect to any Interest by reducing
the amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of Holders of two-thirds of all Interests.
(c) A certification in recordable form executed by
a majority of the Trustees setting forth an amendment and reciting that it was
duly adopted by the Holders or by the Trustees as aforesaid or a copy of the
Declaration, as amended, in recordable form, and executed by a majority of the
Trustees, shall be conclusive evidence of such amendment when filed with the
records of the Trust.
Notwithstanding any other provision hereof, until such time as
Interests are first sold, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees at any meeting of
Trustees or by an instrument executed by a majority of the Trustees.
10.5. MERGER, CONSOLIDATION AND SALE OF ASSETS. The Trust may
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including good will, upon such terms and conditions and for such
consideration when and as authorized at any meeting of Holders called for such
purpose by the affirmative vote of Holders of not less than two-thirds of all
Interests, or by an instrument in writing without a meeting, consented to by
Holders of not less than two-thirds of all Interests, and any such merger,
consolidation, sale, lease or exchange shall be dedpd for all purposes to have
been accomplished under and pursuant to the statutes of the State of New York.
10.6. INCORPORATION. Upon a Majority Interests Vote, the
Trustees may cause to be organized or assist in organizing a corporation or
corporations under the law of any jurisdiction or a trust, partnership,
association or other organization to take over the Trust Property or to carry on
any business in which the Trust directly or indirectly has any interest, and to
sell, convey and transfer the Trust Property to any such corporation, trust,
partnership, association or other organization in exchange for the equity
interests thereof or otherwise, and to lend money to,
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subscribe for the equity interests of, and enter into any contract with any such
corporation, trust, partnership, association or other organization, or any
corporation, trust, partnership, association or other organization in which the
Trust holds or is about to acquire equity interests. The Trustees may also cause
a merger or consolidation between the Trust or any successor thereto and any
such corporation, trust, partnership, association or other organization if and
to the extent permitted by law. Nothing contained herein shall be construed as
requiring approval of the Holders for the Trustees to organize or assist in
organizing one or more corporations, trusts, partnerships, associations or other
organizations and selling, conveying or transferring a portion of the Trust
Property to one or more of such organizations or entities.
ARTICLE XI
MISCELLANEOUS
11.1. CERTIFICATE OF DESIGNATION; AGENT FOR SERVICE OF
PROCESS. The Trust shall file, with the Department of State of the State of New
York, a certificate, in the name of the Trust and executed by an officer of the
Trust, designating the Secretary of State of the State of New York as an agent
upon whom process in any action or proceeding against the Trust may be served.
11.2. GOVERNING LAW. This Declaration is executed by the
Trustees and delivered in the State of New York and with reference to the law
thereof, and the rights of all parties and the validity and construction of
every provision hereof shall be subject to and construed in accordance with the
law of the State of New York and reference shall be specifically made to the
trust law of the State of New York as to the construction of matters not
specifically covered herein or as to which an ambiguity exists.
11.3. COUNTERPARTS. This Declaration may be simultaneously
executed in several counterparts, each of which shall be dedpd to be an
original, and such counterparts, together, shall constitute one and the same
instrument, which shall be sufficiently evidenced by any one such original
counterpart.
11.4. RELIANCE BY THIRD PARTIES. Any certificate executed by
an individual who, according to the records of the Trust or of any recording
office in which this Declaration may be recorded, appears to be a Trustee
hereunder, certifying to: (a) the number or identity of Trustees or Holders, (b)
the due authorization of the execution of any instrument or writing, (c) the
form of any vote passed at a meeting of Trustees or Holders, (d) the fact that
the number of Trustees or Holders present at any meeting or executing any
written instrument satisfies the requirdpnts of this Declaration, (e) the form
of any By-Laws adopted by or the identity of any officer elected by the
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Trustees, or (f) the existence of any fact or facts which in any manner relate
to the affairs of the Trust, shall be conclusive evidence as to the matters so
certified in favor of any Person dealing with the Trustees.
11.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are
severable, and if the Trustees shall determine, with the advice of counsel, that
any of such provisions is in conflict with the 1940 Act, or with other
applicable law and regulations, the conflicting provision shall be dedpd never
to have constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision in such jurisdiction and
shall not in any manner affect such provision in any other jurisdiction or any
other provision of this Declaration in any jurisdiction.
IN WITNESS WHEREOF, the undersigned have executed this
instrument as of the day and year first above written.
/s/ James B. Craver
James B. Craver
As Trustee and not individually
/s/ Thomas M. Lenz
Thomas M. Lenz
As Trustee and not individually
/s/ Andres Saldana
Andres E. Saldana
As Trustee and not individually
23
I:\dsfndlgl\dp\port\amend6.txt
THE DIVERSIFIED PORTFOLIO
INVESTMENT ADVISORY AGREEMENT
Agreement, made this 30th day of June, 1993, between The Diversified
Portfolio, a trust organized under the law of the State of New York (the
"Portfolio") and Morgan Guaranty Trust Company of New York, a New York trust
company authorized to conduct a general banking business (the "Advisor"),
WHEREAS, the Portfolio is an open-end diversified management investment
company registered under the Investment Company Act of 1940, as amended (the
"1940 Act"); and
WHEREAS, the Portfolio desires to retain the Advisor to render
investment advisory services to the Portfolio, and the Advisor is willing to
render such services;
NOW, THEREFORE, this Agreement
W I T N E S S E T H:
that in consideration of the premises and mutual promises hereinafter set forth,
the parties hereto agree as follows:
1. The Portfolio hereby appoints the Advisor to act as
investment adviser to the Portfolio for the period and on the terms set forth in
this Agreement. The Advisor accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided.
2. Subject to the general supervision of the Trustees of the
Portfolio, the Advisor shall manage the investment operations of the Portfolio
and the composition of the Portfolio's holdings of securities and investments,
including cash, the purchase, retention and disposition thereof and agreements
relating thereto, in accordance with the Portfolio's investment objectives and
policies as stated in the Registration Statement (as defined in paragraph 3(d)
of this Agreement) and subject to the following understandings:
(a) the Advisor shall furnish a continuous investment program
for the Portfolio and determine from time to time what investments or
securities will be purchased, retained, sold or lent by the Portfolio,
and what portion of the assets will be invested or held uninvested as
cash;
(b) the Advisor shall use the same skill and care in the
management of the Portfolio's investments as it uses in the
administration of other accounts for which it has investment
responsibility as agent;
1
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<PAGE>
(c) the Advisor, in the performance of its duties and
obligations under this Agreement, shall act in conformity with the
Declaration of Trust, By-Laws and Registration Statement of the
Portfolio and with the instructions and directions of the Trustees of
the Portfolio and will conform to and comply with the requirements of
the 1940 Act and all other applicable federal and state laws and
regulations;
(d) the Advisor shall determine the securities to be
purchased, sold or lent by the Portfolio and as agent for the Portfolio
will effect portfolio transactions pursuant to its determinations
either directly with the issuer or with any broker and/or dealer in
such securities; in placing orders with brokers and/or dealers the
Advisor intends to seek best price and execution for purchases and
sales; the Advisor shall also determine whether or not the Portfolio
shall enter into repurchase or reverse repurchase agreements;
On occasions when the Advisor deems the purchase or sale of a
security to be in the best interest of the Portfolio as well as other
customers of the Advisor, the Advisor may, to the extent permitted by
applicable laws and regulations, but shall not be obligated to,
aggregate the securities to be so sold or purchased in order to obtain
best execution, including lower brokerage commissions, if applicable.
In such event, allocation of the securities so purchased or sold, as
well as the expenses incurred in the transaction, will be made by the
Advisor in the manner it considers to be the most equitable and
consistent with its fiduciary obligations to the Portfolio;
(e) the Advisor shall maintain books and records with respect
to the Portfolio's securities transactions and shall render to the
Portfolio's Trustees such periodic and special reports as the Trustees
may reasonably request; and
(f) the investment management services of the Advisor to the
Portfolio under this Agreement are not to be deemed exclusive, and the
Advisor shall be free to render similar services to others.
3. The Portfolio has delivered copies of each of the following
documents to the Advisor and will promptly notify and deliver to it all future
amendments and supplements, if any:
(a) Declaration of Trust of the Portfolio (such Declaration of
Trust, as presently in effect and as amended from time to time, is
herein called the "Declaration of Trust");
(b) By-Laws of the Portfolio (such By-Laws, as presently in effect and as
amended from time to time, are herein called the "By-Laws");
2
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
(c) Certified resolutions of the Trustees of the Portfolio
authorizing the appointment of the Advisor and approving the form of
this Agreement;
(d) The Portfolio's Notification of Registration on Form N-8A
and Registration Statement on Form N-1A (No. 811-8102) each under the
1940 Act (the "Registration Statement") as filed with the Securities
and Exchange Commission (the "Commission") on October 26, 1993, all
amendments thereto.
4. The Advisor shall keep the Portfolio's books and records
required to be maintained by it pursuant to paragraph 2(e). The Advisor agrees
that all records which it maintains for the Portfolio are the property of the
Portfolio and it will promptly surrender any of such records to the Portfolio
upon the Portfolio's request. The Advisor further agrees to preserve for the
periods prescribed by Rule 31a-2 of the Commission under the 1940 Act any such
records as are required to be maintained by the Advisor with respect to the
Portfolio by Rule 31a-1 of the Commission under the 1940 Act.
5. During the term of this Agreement the Advisor will pay all
expenses incurred by it in connection with its activities under this Agreement,
other than the cost of securities and investments purchased for the Portfolio
(including taxes and brokerage commissions, if any).
6. For the services provided and the expenses borne pursuant
to this Agreement, the Portfolio will pay to the Advisor as full compensation
therefor a fee at an annual rate equal to 1.00% of the Portfolio's average daily
net assets. This fee will be computed daily and payable as agreed by the
Portfolio and the Advisor, but no more frequently than monthly.
7. The Advisor shall not be liable for any error of judgment
or mistake of law or for any loss suffered by the Portfolio in connection with
the matters to which this Agreement relates, except a loss resulting from a
breach of fiduciary duty with respect to the receipt of compensation for
services (in which case any award of damages shall be limited to the period and
the amount set forth in Section 36(b)(3) of the 1940 Act) or a loss resulting
from willful misfeasance, bad faith or gross negligence on its part in the
performance of its duties or from reckless disregard by it of its obligations
and duties under this Agreement.
8. This Agreement shall continue in effect for a period of more than two
years from the date hereof only so long as such continuance is specifically
approved at least annually in conformity with the requirements of the 1940 Act;
provided, however, that this Agreement may be terminated by the Portfolio at any
time, without the payment of any penalty, by vote of a majority of all the
Trustees of the Portfolio or by vote of a majority of the outstanding voting
securities of the Portfolio on 60 days' written notice to the Advisor, or by the
Advisor at any time, without the payment of any penalty, on 90 days' written
notice to the Portfolio. This
3
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<PAGE>
Agreement will automatically and immediately terminate in the event of its
assignment (as defined in the 1940 Act).
9. The Advisor shall for all purposes herein be deemed to be
an independent contractor and shall, unless otherwise expressly provided herein
or authorized by the Trustees of the Portfolio from time to time, have no
authority to act for or represent the Portfolio in any way or otherwise be
deemed an agent of the Portfolio.
10. This Agreement may be amended by mutual consent, but the
consent of the Portfolio must be approved (a) by vote of a majority of those
Trustees of the Portfolio who are not parties to this Agreement or interested
persons of any such party, cast in person at a meeting called for the purpose of
voting on such amendment, and (b) by vote of a majority of the outstanding
voting securities of the Portfolio.
11. Notices of any kind to be given to the Advisor by the
Portfolio shall be in writing and shall be duly given if mailed or delivered to
the Advisor at 9 West 57th Street, New York, New York 10019, Attention: Managing
Director, Funds Management Division, or at such other address or to such other
individual as shall be specified by the Advisor to the Portfolio. Notices of any
kind to be given to the Portfolio by the Advisor shall be in writing and shall
be duly given if mailed or delivered to the Portfolio c/o Signature Financial
Group (Cayman) Limited at P.O. Box 268, Elizabethan Square, George Town, Grand
Cayman BWI or at such other address or to such other individual as shall be
specified by the Portfolio to the Advisor.
12. The Trustees have authorized the execution of this
Agreement in their capacity as Trustees and not individually and the Advisor
agrees that neither the shareholders nor the Trustees nor any officer, employee,
representative or agent of the Portfolio shall be personally liable upon, or
shall resort be had to their private property for the satisfaction of,
obligations given, executed or delivered on behalf of or by the Portfolio, that
the shareholders, trustees, officers, employees, representatives and agents of
the Portfolio shall not be personally liable hereunder, and that it shall look
solely to the property of the Portfolio for the satisfaction of any claim
hereunder.
13. This Agreement may be executed in one or more counterparts, each of
which shall be deemed to be an original.
14. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the 30th day
of June, 1993.
THE DIVERSIFIED PORTFOLIO
By: /s/ Laura R. Young
Laura R. Young
Assistant Treasurer
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By: /s/ Kathleen H. Tripp
Kathleen H. Tripp
Vice President
DIVIAAHUB
5
I:\dsfndlgl\dp\port\amend6.txt
CUSTODIAN CONTRACT
Between
THE DIVERSIFIED PORTFOLIO
and
STATE STREET BANK AND TRUST COMPANY
21E593
<PAGE>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be
Held By It............................................................1
2. Duties of the Custodian with Respect to Property
of the Fund Held by the Custodian in the United States................2
2.1 Holding Securities...........................................2
2.2 Delivery of Securities.......................................3
2.3 Registration of Securities...................................7
2.4 Bank Accounts................................................8
2.5 Availability of Federal Funds................................9
2.6 Collection of Income.........................................9
2.7 Payment of Fund Monies......................................10
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased...................................................13
2.9 Appointment of Agents.......................................13
2.10 Deposit of Fund Assets in Securities System.................14
2.10A Fund Assets Held in the Custodian's Direct Paper
System.............................................17
2.11 Segregated Account..........................................18
2.12 Ownership Certificates for Tax Purposes.....................19
2.13 Proxies.....................................................20
2.14 Communications Relating to Fund Securities..................20
3. Duties of the Custodian with Respect to Property of
the Fund Held Outside of the United States...........................21
3.1 Appointment of Foreign Sub-Custodians.......................21
3.2 Assets to be Held...........................................21
3.3 Foreign Securities Depositories.............................22
3.4 Agreements with Foreign Banking Institutions................22
3.5 Access of Independent Accountants of the Fund...............23
3.6 Reports by Custodian........................................23
3.7 Transactions in Foreign Custody Account.....................24
3.8 Liability of Foreign Sub-Custodians.........................25
3.9 Liability of Custodian......................................25
3.10 Reimbursement for Advances..................................26
3.11 Monitoring Responsibilities.................................27
3.13 Branches of U.S. Banks......................................28
3.13 Tax Law.....................................................28
4. Payments for Sales or Repurchase or Redemptions of Shares of
the Fund.............................................................29
5. Proper Instructions..................................................30
<PAGE>
TABLE OF CONTENTS continued
Page
6. Actions Permitted Without Express Authority..........................31
7. Evidence of Authority................................................32
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Asset Value and Net Income........................32
9. Records..............................................................33
10. Opinion of Fund's Independent Accountants............................34
11. Reports to Fund by Independent Public Accountants....................34
12. Compensation of Custodian............................................35
13. Responsibility of Custodian..........................................35
14. Effective Period, Termination and Amendment..........................37
15. Successor Custodian..................................................39
16. Interpretive and Additional Provisions...............................41
17. Massachusetts Law to Apply...........................................41
18. Prior Contracts......................................................41
19. Shareholder Communications Election..................................41
20. Limitation of Liability..............................................42
<PAGE>
CUSTODIAN CONTRACT
This Contract between The Diversified Portfolio, a business trust organized
and existing under the laws of the State of New York, having its principal place
of business at 6 St. James Avenue, Boston, Massachusetts 02116, hereinafter
called the "Fund", and State Street Bank and Trust Company, a Massachusetts
trust company, having its principal place of business at 225 Franklin Street,
Boston, Massachusetts, 02110, hereinafter called the "Custodian",
WITNESSETH, in consideration of the mutual covenants and agreements
hereinafter contained, the parties hereto agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of
the Fund, including securities which the Fund desires to be held in places
within the United States ("domestic securities") and securities it desires to be
held outside the United States ("foreign securities") pursuant to the provisions
of the Declaration of Trust. The Fund agrees to deliver to the Custodian all
securities and cash of the Fund, and all payments of income, payments of
principal or capital distributions received by it with respect to all securities
owned by the Fund from time to time, and the cash consideration received by it
for such new or treasury shares of beneficial interest of the Fund ("Shares") as
may be issued or sold from time to time. The
<PAGE>
Custodian shall not be responsible for any property of the Fund held or
received by the Fund and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of
Article 5), the Custodian shall on behalf of the applicable Fund(s)
from time to time employ one or more sub-custodians, located in the
United States but only in accordance with an applicable vote by the
Board of Trustees of the Fund and provided that the Custodian shall
have no more or less responsibility or liability to the Fund on account
of any actions or omissions of any sub-custodian so employed than any
such sub-custodian has to the Custodian.
The Custodian may employ as sub-custodian for the Fund's foreign
securities foreign banking institutions and foreign securities
depositories designated in Schedule A hereto but only in accordance
with the provisions of Article 3.
2. Duties of the Custodian with Respect to Property of the Fund Held By
the Custodian in the United States
2.1 Holding Securities. The Custodian shall hold and physically segregate
for the account of the Fund all non-cash property, to be held by it in
the United States including all domestic securities owned by the Fund,
other than (a) securities which are maintained pursuant to Section
2.10 in a clearing agency which acts as a securities depository
or in a book-entry system authorized by the U.S. Department of the
Treasury, collectively
2
<PAGE>
referred to herein as "Securities System" and (b) commercial paper of
an issuer for which State Street Bank and Trust Company acts as issuing
and paying agent ("Direct Paper") which is deposited and/or maintained
in the Direct Paper System of the Custodian pursuant to Section 2.10A.
2.2 Deliveries of Securities. The Custodian shall release and deliver
domestic securities owned by the Fund held by the Custodian or in
a Securities System account of the Custodian or in the Custodian's
Direct Paper book entry system account ("Direct Paper System
Account") only upon receipt of Proper Instructions from the Fund,
which may be continuing instructions when deemed appropriate by
the parties, and only in the following cases:
1) Upon sale of such securities for the account of
the Fund and receipt of payment therefore;
2) Upon the receipt of payment in connection with
any repurchase agreement related to such
securities entered into by the Fund;
3) In the case of a sale effected through a
Securities System, in accordance with the
provisions of Section 2.10 hereof;
4) To the depository agent in connection with
tender or other similar offers for securities of
the Fund;
5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or
3
<PAGE>
otherwise become payable; provided that, in any
such case, the cash or other consideration is to
be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer
into the name of the Fund or into the name of any
nominee or nominees of the Custodian or into the
name or nominee name of any agent appointed
pursuant to Section 2.9 or into the name or
nominee name of any sub-custodian appointed
pursuant to Article 1; or for exchange for a
different number of bonds, certificates or other
evidence representing the same aggregate face
amount or number of units; provided that, in any
such case, the new securities are to be delivered
to the Custodian;
7) Upon the sale of such securities for the account
of the Fund, to the broker or its clearing agent,
against a receipt, for examination in accordance
with "street delivery" custom; provided that in
any such case, the Custodian shall have no
responsibility or liability for any loss arising
from the delivery of such securities prior to
receiving payment for such securities except as
may arise from the Custodian's own negligence or
willful misconduct;
8) For exchange or conversion pursuant to any plan
of
4
<PAGE>
merger, consolidation, recapitalization,
reorganization or readjustment of the securities
of the issuer of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new
securities and cash, if any, are to be delivered
to the Custodian;
9) In the case of warrants, rights or similar
securities, the surrender thereof in the exercise
of such warrants, rights or similar securities or
the surrender of interim receipts or temporary
securities for definitive securities; provided
that, in any such case, the new securities and
cash, if any, are to be delivered to the
Custodian;
10) For delivery in connection with any loans of
securities made by the Fund, but only against
receipt of adequate collateral as agreed upon
from time to time by the Custodian and the Fund
on behalf of the Portfolio, which may be in the
form of cash or obligations issued by the United
States government, its agencies or
instrumentalities, except that in connection with
any loans for which collateral is to be credited
to the Custodian's account in the book-entry
system authorized by the
5
<PAGE>
U.S. Department of the Treasury, the Custodian
will not be held liable or responsible for the
delivery of securities owned by the Fund prior
to the receipt of such collateral;
11) For delivery as security in connection with any
borrowings by the Fund requiring a pledge of
assets by the Fund, but only against receipt of
amounts borrowed;
12) For delivery in accordance with the provisions of
any agreement among the Fund, the Custodian and a
broker-dealer registered under the Securities
Exchange Act of 1934 (the "Exchange Act") and a
member of The National Association of Securities
Dealers, Inc. ("NASD"), relating to compliance
with the rules of The Options Clearing
Corporation and of any registered national
securities exchange, or of any similar
organization or organizations, regarding escrow
or other arrangements in connection with
transactions by the Fund;
13) For delivery in accordance with the provisions of
any agreement among the Fund, the Custodian, and
a Futures Commission Merchant registered under
the Commodity Exchange Act, relating to
compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract
Market, or any
6
<PAGE>
similar organization or organizations, regarding
account deposits in connection with transactions
by the Fund;
14) Upon receipt of instructions from the transfer
agent ("Transfer Agent") for the Fund, for
delivery to such Transfer Agent or to the holders
of shares in connection with distributions in
kind, as may be described from time to time in
the currently effective prospectus and statement
of additional information of the Fund, related to
the Fund ("Prospectus"), in satisfaction of
requests by holders of Shares for repurchase or
redemption; and
15) For any other proper corporate purpose, but only
upon receipt of, in addition to Proper
Instructions from the Fund, a certified copy of a
resolution of the Board of Trustees or of the
Executive Committee signed by an officer of the
Fund and certified by the Secretary or an
Assistant Secretary, specifying the securities of
the Fund to be delivered, setting forth the
purpose for which such delivery is to be made,
declaring such purpose to be a proper corporate
purpose, and naming the person or persons to whom
delivery of such securities shall be made.
2.3 Registration of Securities. Domestic securities held
by
7
<PAGE>
the Custodian (other than bearer securities) shall be
registered in the name of the Fund or in the name of any
nominee of the Fund or of any nominee of the Custodian
which nominee shall be assigned exclusively to the Fund,
unless the Fund has authorized in writing the appointment
of a nominee to be used in common with other registered
investment companies having the same investment adviser as
the Fund, or in the name or nominee name of any agent
appointed pursuant to Section 2.9 or in the name or
nominee name of any sub-custodian appointed pursuant to
Article 1. All securities accepted by the Custodian under
the terms of this Contract shall be in "street name" or
other good delivery form. If, however, the Fund directs
the Custodian to maintain securities in "street name", the
Custodian shall utilize its best efforts only to timely
collect income due the Fund on such securities and to
notify the Fund on a best efforts basis only of relevant
corporate actions including, without limitation, pendency
of calls, maturities, tender or exchange offers.
2.4 Bank Accounts. The Custodian shall open and maintain a
separate bank account or accounts in the United States in
the name of the Fund, subject only to draft or order by
the Custodian acting pursuant to the terms of this
Contract, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it
from or for the account of the Fund, other than cash
maintained by the Fund
8
<PAGE>
in a bank account established and used in accordance with
Rule 17f-3 under the Investment Company Act of 1940. Funds
held by the Custodian for a Fund may be deposited by it to
its credit as Custodian in the Banking Department of the
Custodian or in such other banks or trust companies as it
may in its discretion deem necessary or desirable;
provided, however, that every such bank or trust company
shall be qualified to act as a custodian under the
Investment Company Act of 1940 and that each such bank or
trust company and the funds to be deposited with each such
bank or trust company shall be approved by vote of a
majority of the Board of Trustees of the Fund. Such funds
shall be deposited by the Custodian in its capacity as
Custodian and shall be withdrawable by the Custodian only
in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement
between the Fund and the Custodian, the Custodian shall,
upon the receipt of Proper Instructions from the Fund,
make federal funds available to such Fund as of specified
times agreed upon from time to time by the Fund and the
Custodian in the amount of checks received in payment for
Shares of such Fund which are deposited into the Fund's
account.
2.6 Collection of Income. Subject to the provisions of Section
2.3, the Custodian shall collect on a timely basis all
income and other payments with respect to registered
domestic securities held hereunder to which the Fund shall
9
<PAGE>
be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely
basis all income and other payments with respect to bearer
domestic securities if, on the date of payment by the
issuer, such securities are held by the Custodian or its
agent thereof and shall credit such income, as collected,
to such Fund's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach
and present for payment all coupons and other income items
requiring presentation as and when they become due and
shall collect interest when due on securities held
hereunder. Income due the Fund on securities loaned
pursuant to the provisions of Section 2.2 (10) shall be
the responsibility of the Fund. The Custodian will have no
duty or responsibility in connection therewith, other than
to provide the Fund with such information or data as may
be necessary to assist the Fund in arranging for the
timely delivery to the Custodian of the income to which
the Fund is properly entitled.
2.7 Payment of Fund Monies. Upon receipt of Proper
Instructions from the Fund, which may be continuing
instructions when deemed appropriate by the parties, the
Custodian shall pay out monies of the Fund in the
following cases only:
1) Upon the purchase of domestic securities, options,
options, futures contracts or options on futures
contracts
10
<PAGE>
for the account of the Fund but only (a) against
the delivery of such securities or evidence of
title to such options, futures contracts or
options on futures contracts to the Custodian (or
any bank, banking firm or trust company doing
business in the United States or abroad which is
qualified under the Investment Company Act of
1940, as amended, to act as a custodian and has
been designated by the Custodian as its agent for
this purpose) registered in the name of the Fund
or in the name of a nominee of the Custodian
referred to in Section 2.3 hereof or in proper
form for transfer; (b) in the case of a purchase
effected through a Securities System, in
accordance with the conditions set forth in
Section 2.10 hereof; (c) in the case of a
purchase involving the Direct Paper System, in
accordance with the conditions set forth in
Section 2.10A; (d) in the case of repurchase
agreements entered into between the Fund and the
Custodian, or another bank, or a broker-dealer
which is a member of NASD, (i) against delivery
of the securities either in certificate form or
through an entry crediting the Custodian's
account at the Federal Reserve Bank with such
securities or (ii) against delivery of the
receipt evidencing purchase by the
11
<PAGE>
Fund of securities owned by the Custodian along
with written evidence of the agreement by the
Custodian to repurchase such securities from the
Fund or(e)for transfer to a time deposit account
of the Fund in any bank, whether domestic or
foreign; such transfer may be effected prior to
receipt of a confirmation from a broker and/or
the applicable bank pursuant to Proper
Instructions from the Fund as defined in Article
5;
2) In connection with conversion, exchange or
surrender of securities owned by the Fund as set
forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares
issued by the Fund as set forth in Article 4
hereof;
4) For the payment of any expense or liability
incurred by the Fund, including but not limited
to the following payments for the account of the
Fund: interest, taxes, management, accounting,
transfer agent and legal fees, and operating
expenses of the Fund whether or not such expenses
are to be in whole or part capitalized or treated
as deferred expenses;
5) For the payment of any dividends on Shares of the
Fund declared pursuant to the governing documents
of the Fund;
6) For payment of the amount of dividends received
in
12
<PAGE>
respect of securities sold short;
7) For any other proper purpose, but only upon
receipt of, in addition to Proper Instructions
from the Fund, a certified copy of a resolution
of the Board of Trustees or of the Executive
Committee of the Fund signed by an officer of the
Fund and certified by its Secretary or an
Assistant Secretary, specifying the amount of
such payment, setting forth the purpose for which
such payment is to be made, declaring such
purpose to be a proper purpose, and naming the
person or persons to whom such payment is to be
made.
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased. Except as specifically stated otherwise in this
Contract, in any and every case where payment for purchase of
domestic securities for the account of a Fund is made by the
Custodian in advance of receipt of the securities purchased in the
absence of specific written instructions from the Fund so pay in
advance, the Custodian shall be absolutely liable to the Fund for
such securities to the same extent as if the securities had been
received by the Custodian.
2.9 Appointment of Agents. The Custodian may at any time or times in
its discretion appoint (and may at any time remove) any other bank
or trust company which is itself qualified under the Investment
Company Act of 1940, as
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amended, to act as a custodian, as its agent to carry out such of
the provisions of this Article 2 as the Custodian may from time to
time direct; provided, however, that the appointment of any agent
shall not relieve the Custodian of its responsibilities or
liabilities hereunder.
2.10 Deposit of Fund Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by the Fund in a clearing
agency registered with the Securities and Exchange Commission
under Section 17A of the Securities Exchange Act of 1934, which
acts as a securities depository, or in the book-entry system
authorized by the U.S. Department of the Treasury and certain
federal agencies, collectively referred to herein as "Securities
System" in accordance with applicable Federal Reserve Board and
Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
1) The Custodian may keep securities of the Fund
in a Securities System provided that such
securities are represented in an account
("Account") of the Custodian in the Securities
System which shall not include any assets of the
Custodian other than assets held as a fiduciary,
custodian or otherwise for customers;
2) The records of the Custodian with respect to
securities of the Fund which are maintained in a
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Securities System shall identify by book-entry
those securities belonging to the Fund; 3) The
Custodian shall pay for securities purchased for
the account of the Fund upon (i) receipt of
advice from the Securities System that such
securities have been transferred to the Account,
and (ii) the making of an entry on the records of
the Custodian to reflect such payment and
transfer for the account of the Fund. The
Custodian shall transfer securities sold for the
account of the Fund upon (i) receipt of advice
from the Securities System that payment for such
securities has been transferred to the Account,
and (ii) the making of an entry on the records of
the Custodian to reflect such transfer and
payment for the account of the Fund. Copies of
all advices from the Securities System of
transfers of securities for the account of the
Fund shall identify the Fund, be maintained for
the Fund by the Custodian and be provided to the
Fund at its request. Upon request, the Custodian
shall furnish the Fund on behalf of the Fund
confirmation of each transfer to or from the
account of the Fund in the form of a written
advice or notice and shall furnish to the Fund on
behalf of the Fund copies of daily transaction
sheets reflecting each day's
15
<PAGE>
transactions in the Securities System for the
account of the Fund;
4) The Custodian shall provide the Fund with any
report obtained by the Custodian on the
Securities System's accounting system, internal
accounting control and procedures for
safeguarding securities deposited in the
Securities System;
5) The Custodian shall have received from the Fund
initial or annual certificate, as the case may
be, required by Article 14 hereof;
6) Anything to the contrary in this Contract
notwithstanding, the Custodian shall be liable to
the Fund for any loss or damage to the Fund
resulting from use of the Securities System by
reason of any negligence, misfeasance or
misconduct of the Custodian or any of its agents
or of any of its or their employees or from
failure of the Custodian or any such agent to
enforce effectively such rights as it may have
against the Securities System; at the election of
the Fund, it shall be entitled to be subrogated
to the rights of the Custodian with respect to
any claim against the Securities System or any
other person which the Custodian may have as a
consequence of any such loss or damage if and to
the extent that the Fund has not been made whole
16
<PAGE>
for any such loss or damage.
2.10A Fund Assets Held in the Custodian's Direct Paper System The
Custodian may deposit and/or maintain securities owned by the Fund
in the Direct Paper System of the Custodian subject to the
following provisions:
1) No transaction relating to securities in the
Direct Paper System will be effected in the
absence of Proper Instructions from the Fund;
2) The Custodian may keep securities of the Fund in
the Direct Paper System only if such securities
are represented in an account ("Account") of the
Custodian in the Direct Paper System which shall
not include any assets of the Custodian other
than assets held as a fiduciary, custodian or
otherwise for customers;
3) The records of the Custodian with respect to
securities of the Fund which are maintained in
the Direct Paper System shall identify by book-
entry those securities belonging to the Fund;
4) The Custodian shall pay for securities purchased
for the account of the Fund upon the making of an
entry on the records of the Custodian to reflect
such payment and transfer of securities to the
account of the Fund. The Custodian shall transfer
securities sold for the account of the Fund upon
17
<PAGE>
the making of an entry on the records of the
Custodian to reflect such transfer and
receipt of payment for the account of the Fund;
5) The Custodian shall furnish the Fund confirmation
of each transfer to or from the account of the
Fund, in the form of a written advice or notice,
of Direct Paper on the next business day
following such transfer and shall furnish to the
Fund copies of daily transaction sheets
reflecting each day's transaction in the
Securities System for the account of the Fund;
6) The Custodian shall provide the Fund on behalf of
the Fund with any report on its system of
internal accounting control as the Fund may
reasonably request from time to time.
2.11 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated
account or accounts for and on behalf of the Fund, into which
account or accounts may be transferred cash and/or securities,
including securities maintained in an account by the Custodian
pursuant to Section 2.10 hereof, (i) in accordance with the
provisions of any agreement among the Fund, the Custodian and a
broker-dealer registered under the Exchange Act and a member of
the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the
18
<PAGE>
rules of The Options Clearing Corporation and of any registered
national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar
organization or organizations, regarding escrow or other
arrangements in connection with transactions by the Fund, (ii) for
purposes of segregating cash or government securities in
connection with options purchased, sold or written by the Fund or
commodity futures contracts or options thereon purchased or sold
by the Fund, (iii) for the purposes of compliance by the Fund with
the procedures required by Investment Company Act Release No.
10666, or any subsequent release or releases of the Securities and
Exchange Commission relating to the maintenance of segregated
accounts by registered investment companies and (iv) for other
proper corporate purposes, but only, in the case of clause (iv),
upon receipt of, in addition to Proper Instructions from the Fund,
a certified copy of a resolution of the Board of Trustees or of
the Executive Committee signed by an officer of the Fund and
certified by the Secretary or an Assistant Secretary, setting
forth the purpose or purposes of such segregated account and
declaring such purposes to be proper corporate purposes.
2.12 Ownership Certificates for Tax Purposes. The Custodian
19
<PAGE>
shall execute ownership and other certificates and affidavits for
all federal and state tax purposes in connection with receipt of
income or other payments with respect to domestic securities of
the Fund held by it and in connection with transfers of
securities.
2.13 Proxies. The Custodian shall, with respect to the domestic
securities held hereunder, cause to be promptly executed by the
registered holder of such securities, if the securities are
registered otherwise than in the name of the Fund or a nominee of
the Fund, all proxies, without indication of the manner in which
such proxies are to be voted, and shall promptly deliver to the
Fund such proxies, all proxy soliciting materials and all notices
relating to such securities.
2.14 Communications Relating to Fund Securities. Subject to the
provisions of Section 2.3, the Custodian shall transmit promptly
to the Fund all written information (including, without
limitation, pendency of calls and maturities of domestic
securities and expirations of rights in connection therewith and
notices of exercise of call and put options written by the Fund
and the maturity of futures contracts purchased or sold by the
Fund) received by the Custodian from issuers of the securities
being held for the Fund. With respect to tender or exchange
offers, the Custodian shall transmit promptly to the Fund all
written information received by the Custodian from issuers of the
securities
20
<PAGE>
whose tender or exchange is sought and from the party
(or his agents) making the tender or exchange offer. If the Fund
desires to take action with respect to any tender offer, exchange
offer or any other similar transaction, the Fund shall notify the
Custodian at least three business days prior to the date on which
the Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Fund Held
Outside of the United States.
3.1 Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Custodian to
employ as sub-custodians for the Fund's securities and other
assets maintained outside the United States the foreign banking
institutions and foreign securities depositories designated on
Schedule A hereto ("foreign sub-custodians"). Upon receipt of
"Proper Instructions", as defined in Section 5 of this Contract,
together with a certified resolution of the Fund's Board of
Trustees, the Custodian and the Fund may agree to amend Schedule A
hereto from time to time to designate additional foreign banking
institutions and foreign securities depositories to act as
sub-custodian. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more
such sub-custodians for maintaining custody of the Fund's assets.
3.2 Assets to be Held. The Custodian shall limit the
21
<PAGE>
securities and other assets maintained in the custody of the
foreign sub-custodians to: (a) "foreign securities", as defined in
paragraph (c)(1) of Rule 17f-5 under the Investment Company Act of
1940, and (b) cash and cash equivalents in such amounts as the
Custodian or the Fund may determine to be reasonably necessary to
effect the Fund's foreign securities transactions. The Custodian
shall identify on its books as belonging to the Fund, the foreign
securities of the Fund held by each foreign sub-custodian.
3.3 Foreign Securities Depositories. Except as may otherwise be agreed
upon in writing by the Custodian and the Fund, assets of the Funds
shall be maintained in foreign securities depositories only
through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms
hereof. Where possible, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.4
hereof.
3.4 Agreements with Foreign Banking Institutions. Each agreement with
a foreign banking institution shall be substantially in the form
set forth in Exhibit 1 hereto and shall provide that: (a) the
assets of the Fund will not be subject to any right, charge,
security interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or agent, except a
claim of
22
<PAGE>
payment for their safe custody or administration; (b) beneficial
ownership for the assets of the Fund will be freely transferable
without the payment of money or value other than for custody or
administration; (c) adequate records will be maintained
identifying the assets as belonging to the Fund; (d) officers of
or auditors employed by, or other representatives of the
Custodian, including to the extent permitted under applicable law
the independent public accountants for the Fund, will be given
access to the books and records of the foreign banking institution
relating to its actions under its agreement with the Custodian;
and (e) assets of the Fund held by the foreign sub-custodian will
be subject only to the instructions of the Custodian or its
agents.
3.5 Access of Independent Accountants of the Fund. Upon request of the
Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Fund to be afforded access to the
books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to
the performance of such foreign banking institution under its
agreement with the Custodian.
3.6 Reports by Custodian. The Custodian will supply to the Fund from
time to time, as mutually agreed upon, statements in respect of
the securities and other assets of the Fund(s) held by foreign
sub-custodians, including but not
23
<PAGE>
limited to an identification of entities having possession of the
Fund's securities and other assets and advices or notifications of
any transfers of securities to or from each custodial account
maintained by a foreign banking institution for the Custodian on
behalf of the Fund indicating, as to securities acquired for the
Fund, the identity of the entity having physical possession of
such securities.
3.7 Transactions in Foreign Custody Account
(a) Except as otherwise provided in paragraph (b) of this Section
3.7, the provision of Sections 2.2 and 2.7 of this Contract shall
apply, mutatis mutandis to the foreign securities of the Fund held
outside the United States by foreign sub-custodians. (b)
Notwithstanding any provision of this Contract to the contrary,
settlement and payment for securities received for the account of
the Fund and delivery of securities maintained for the account of
Fund may be effected in accordance with the customary established
securities trading or securities processing practices and
procedures in the jurisdiction or market in which the transaction
occurs, including, without limitation, delivering securities to
the purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expectation
of receiving later payment for such securities from such purchaser
or dealer.
24
<PAGE>
(c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's
nominee to the same extent as set forth in Section 2.3 of this
Contract, and the Fund agrees to hold any such nominee harmless
from any liability as a holder of record of such securities.
3.8 Liability of Foreign Sub-Custodians. Each agreement pursuant to
which the Custodian employs a foreign banking institution as a
foreign sub-custodian shall require the institution to exercise
reasonable care in the performance of its duties and to indemnify,
and hold harmless, the Custodian and the Fund from and against any
loss, damage, cost, expense, liability or claim arising out of or
in connection with the institution's performance of such
obligations. At the election of the Fund, it shall be entitled to
be subrogated to the rights of the Custodian with respect to any
claims against a foreign banking institution as a consequence of
any such loss, damage, cost, expense, liability or claim if and to
the extent that the Fund has not been made whole for any such
loss, damage, cost, expense, liability or claim.
3.9 Liability of Custodian. The Custodian shall be liable for the acts
or omissions of a foreign banking institution to he same extent as
set forth with respect to sub-custodians generally in this
Contract and, regardless of whether assets are maintained in the
custody of a foreign banking
25
<PAGE>
institution, a foreign securities depository or a branch of a U.S.
bank as contemplated by paragraph 3.12 hereof, the Custodian shall
not be liable for any loss, damage, cost, expense, liability or
claim resulting from nationalization, expropriation, currency
restrictions, or acts of war or terrorism or any loss where the
sub-custodian has otherwise exercised reasonable care.
Notwithstanding the foregoing provisions of this paragraph 3.9, in
delegating custody duties to State Street London Ltd., the
Custodian shall not be relieved of any responsibility to the Fund
for any loss due to such delegation, except such loss as may
result from (a) political risk (including, but not limited to,
exchange control restrictions, confiscation, expropriation,
nationalization, insurrection, civil strife or armed hostilities)
or (b) other losses (excluding a bankruptcy or insolvency of State
Street London Ltd. not caused by political risk) due to Acts of
God, nuclear incident or other losses under circumstances where
the Custodian and State Street London Ltd. have exercised
reasonable care.
3.10 Reimbursement for Advances. If the Fund requires the Custodian to
advance cash or securities for any purpose including the purchase
or sale of foreign exchange or of contracts for foreign exchange,
or in the event that the Custodian or its nominee shall incur or
be assessed any taxes, charges, expenses, assessments, claims or
liabilities in connection with the performance of this
26
<PAGE>
Contract, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct,
any property at any time held for the account of the Fund shall be
security therefor and should the Fund fail to repay the Custodian
promptly, the Custodian shall be entitled to utilize available
cash and to dispose of the Fund's assets to the extent necessary
to obtain reimbursement.
3.11 Monitoring Responsibilities. The Custodian shall furnish annually
to the Fund, during the month of June, information concerning the
foreign sub-custodians employed by the Custodian. Such information
shall be similar in kind and scope to that furnished to the Fund
in connection with the initial approval of this Contract. In
addition, the Custodian will promptly inform the Fund in the event
that the Custodian learns of a material adverse change in the
financial condition of a foreign sub-custodian or any material
loss of the assets of the Fund or in the case of any foreign
sub-custodian not the subject of an exemptive order from the
Securities and Exchange Commission is notified by such foreign
sub-custodian that there appears to be a substantial likelihood
that its shareholders' equity will decline below $200 million
(U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in
accordance with generally accepted U.S. accounting
27
<PAGE>
principles).
3.12 Branches of U.S. Banks. (a) Except as otherwise set forth in this
Contract, the provisions hereof shall not apply where the custody
of the Fund's assets are maintained in a foreign branch of a
banking institution which is a "bank" as defined by Section
2(a)(5) of the Investment Company Act of 1940 meeting the
qualification set forth in Section 26(a) of said Act. The
appointment of any such branch as a sub-custodian shall be
governed by paragraph 1 of this Contract. (b) Cash held for the
Fund in the United Kingdom shall be maintained in an interest
bearing account established for the Fund with the Custodian's
London branch, which account shall be subject to the direction of
the Custodian, State Street London Ltd. or both.
3.13 Tax Law.
(a) United States Taxes
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Fund or the Custodian
as custodian of the Fund by the tax law of the United States of
America or any state or political subdivision thereof. The
Custodian will be responsible for informing the Fund of the income
received by the Fund which is United States source income and
which is non-United States source income.
(b) Claiming for Exemption or Refunds under the Tax Laws of
28
<PAGE>
Non-United States Jurisdictions
The sole responsibility of the Custodian with regard to the tax
laws of non-United States jurisdictions shall be to identify the
income of the Fund which has been subject to withholding and other
tax assessments or other governmental charges by such
jurisdictions and, on the basis of information furnished to it by
the Fund as to the allocated amount of such income that is
attributable to each of its investors, to use reasonable efforts
to assist the Fund or its investors with respect to any claim for
exemption or refund of such charges that can be made on behalf of
such Fund or such investors.
4. Payments for Sales or Repurchases or Redemptions of Interests in
the Fund. The Custodian shall receive and deposit into the account
of the Fund such payments as are received for interests in the
Fund issued or sold from time to time by the Fund. The Custodian
will provide notification to the Fund of any receipt by it of
payments for interests in the Fund.
From such funds as may be available for the purpose but
subject to the limitations of the Declaration of Trust and
any applicable votes of the Board of Trustees of the Fund
pursuant thereto, the Custodian shall, upon receipt of
instructions from the Fund, make funds available to an
account designated by the Fund for payment to holders of
interests in the Fund who have delivered to the Fund a
29
<PAGE>
request for redemption or repurchase of their interests.
5. Proper Instructions. Proper Instructions as used through-
out this Contract means a writing signed or initialled by
one or more person or persons as the Board of Trustees
shall have from time to time authorized. Each such writing
shall set forth the specific transaction or type of trans-
action involved, including a specific statement of the
purpose for which such action is requested. Oral
instructions will be considered Proper Instructions if the
Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect
to the transaction involved. The Fund shall cause all oral
instructions to be confirmed in writing. It is understood
and agreed that the Board of Directors has authorized
Morgan Guaranty Trust Company of New York ("Morgan
Guaranty"), as Advisor of the Fund pursuant to an
Investment Advisory Agreement, dated as of May 30, 1990
between Morgan Guaranty and the Fund, to deliver Proper
Instructions with respect to all matters for which Proper
Instructions are required by paragraphs 2.2(1) through
2.2(14), 2.5 , 2.7(1) and 2.7(2), 2.7(6), 2.11(i) through
2.11(iii) and 3.7(a). The Custodian may rely upon the
certificate of an officer of Morgan Guaranty with respect
to the person or persons authorized on behalf of Morgan
Guaranty to sign, initial or give Proper Instructions for
the purposes of such paragraphs. Upon
30
<PAGE>
receipt of a certificate of the Secretary or an Assistant
Secretary as to the authorization by the Board of Trustees
of the Fund accompanied by a detailed description of
procedures approved by the Board of Trustees, Proper
Instructions may include communications effected directly
between electro-mechanical or electronic devices provided
that the Board of Trustees and the Custodian are satisfied
that such procedures afford adequate safeguards for the
Fund's assets. For purposes of this Section, Proper
Instructions shall include instructions received by the
Custodian pursuant to any three - party agreement which
requires a segregated asset account in accordance with
Section 2.11.
6. Actions Permitted without Express Authority. The Custodian
may in its discretion, without express authority from the
Fund:
1) make payments to itself or others for
minor expenses of handling securities or
or other similar items relating to its
duties under this Contract, provided that
all such payments shall be accounted for to
the Fund;
2) surrender securities in temporary form for
securities in definitive form;
3) endorse for collection, in the name of the
Fund, checks, drafts end other negotiable
instruments; and
31
<PAGE>
4) in general, attend to all
non-discretionary details in connection
with the sale, exchange, substitution,
purchase, transfer and other dealings
with the securities and property of the
Fund except as otherwise directed by the
Board of Trustees of the Fund.
7. Evidence of Authority. The Custodian shall be protected
in acting upon any instructions, notice, request, consent,
certificate or other instrument or paper believed by it to
be genuine and to have been properly executed by or on
behalf of the Fund. The Custodian may receive and accept
a certified copy of a vote of the Board of Trustees of
the Fund as conclusive evidence (a) of the authority of
any person to act in accordance with such vote or (b) of
any determination or of any action by the Board of
Trustees pursuant to the Declaration of Trust as described
in such vote, and such vote may be considered as in full
force and effect until receipt by the Custodian of written
notice to the contrary.
8. Duties of Custodian with Respect to the Books of Account
and Calculation of Net Income.
The Custodian shall keep the books of account of the
Fund. Until otherwise directed by Proper Instructions,
the Custodian shall calculate daily the net income of the
Fund as described in Part A of its Registration Statement
under the 1940 Act and shall advise
32
<PAGE>
the Fund daily of the total amounts of such net income,
including the categorization of such net income by source.
The calculation of the Fund's net income and it components
shall include, but may not be limited to, accounting for
purchases and sales of portfolio securities, calculation
of realized and unrealized gains and losses, accruals of
income on portfolio investments, hub level expense
accruals and calculations of market value of portfolio
securities. The Custodian will transmit accounting
information produced by the Custodian to the Fund or an
agent designated by the Fund in such format and by such
means as the Fund and the Custodian shall agree in order
that the Fund or such agent may calculate the net asset
value and SEC yield of the Fund and the allocation of its
various components to investors in the Fund. The Custodian
shall in no event be responsible for the calculation or
publication of the net asset value or yields of the Fund.
9. Records. The Custodian shall with respect to the Fund
create and maintain all records relating to its activities
and obligations under this Contract in such manner as the
Fund and the Custodian may agree from time to time. All
such records shall be the property of the Fund and shall
at all times during the regular business hours of the
Custodian be open for inspection by duly authorized
officers, employees or agents of the Fund and employees
and
33
<PAGE>
agents of the Securities and Exchange Commission. The
Custodian shall, at the Fund's request, supply the Fund
with a tabulation of securities owned by the Fund and held
by the Custodian and shall, when requested to do so by the
Fund and for such compensation as shall be agreed upon
between the Fund and the Custodian, include certificate
numbers in such tabulations.
10. Opinion of Fund's Independent Accountant. The Custodian
shall take all reasonable action, as the Fund may from
time to time request, to assist the Fund in obtaining from
year to year favorable opinions from the Fund's
independent accountants with respect to its activities
hereunder in connection with the preparation of the Fund's
Form N-1A, and Form N-SAR or other periodic reports to the
Securities and Exchange Commission and with respect to any
other requirements of such Commission.
11. Reports to Fund by Independent Public Accountants. The
Custodian shall provide the Fund, at such times as the
Fund may reasonably require, with reports by independent
public accountants on the accounting system, internal
accounting control and procedures for safeguarding
securities, futures contracts and options on futures
contracts, including securities deposited and/or
maintained in a Securities System, relating to the
services provided by the Custodian under this Contract;
such reports, shall be of sufficient scope and in
sufficient detail, as may reasonably be
34
<PAGE>
required by the Fund to provide reasonable assurance that
any material inadequacies would be disclosed by such
examination, and, if there are no such inadequacies, the
reports shall so state.
12. Compensation of Custodian. The Custodian shall be entitled
to reasonable compensation for its services and expenses
as Custodian, as agreed upon from time to time between
the Fund and the Custodian.
13. Responsibility of Custodian. So long as and to the extent
that it is in the exercise of reasonable care, the
Custodian shall not be responsible for the title,
validity or genuineness of any property or evidence
of title thereto received by it or delivered by it
pursuant to this Contract and shall be held harmless in
acting upon any notice, request, consent, certificate or
other instrument reasonably believed by it to be genuine
and to be signed by the proper party or parties, including
any futures commission merchant acting pursuant to the
terms of a three-party futures or options agreement. The
Custodian shall be held to the exercise of reasonable care
in carrying out the provisions of this Contract, but shall
be kept indemnified by and shall be without liability to
the Fund for any action taken or omitted by it in good
faith without negligence. It shall be entitled to rely on
and may act upon advice of counsel (who may be counsel for
the Fund) on all matters, and shall be without liability
for
35
<PAGE>
any action reasonably taken or omitted pursuant to such advice.
The Custodian shall be liable for the acts or omissions of a
foreign banking institution appointed pursuant to the provisions
of Article 3 to the same extent as set forth in Article 1 hereof
with respect to sub-custodians located in the United States
(except as specifically provided in Article 3.9) and, regardless
of whether assets are maintained in the custody of a foreign
banking institution, a foreign securities depository or a branch
of a U.S. bank as contemplated by paragraph 3.12 hereof, the
Custodian shall not be liable for any loss, damage, cost, expense,
liability or claim resulting from, or caused by, the direction of
or authorization by the Fund to maintain custody or any securities
or cash of the Fund in a foreign country including, but not
limited to, losses resulting from nationalization, expropriation,
currency restrictions, or acts of war or terrorism.
If the Fund requires the Custodian to take any action with
respect to securities, which action involves the payment of
money or which action may, in the opinion of the Custodian,
result in the Custodian or its nominee assigned to the Fund or
the Fund being liable for the payment of money or incurring
liability of some other form, the Fund, as a prerequisite to
requiring the Custodian to take such action, shall provide
indemnity to the Custodian in an
36
<PAGE>
amount and form satisfactory to it.
If the Fund requires the Custodian, its affiliates, subsidiaries
or agents, to advance cash or securities for any purpose
(including but not limited to securities settlements, foreign
exchange contracts and assumed settlement) for the benefit of the
Fund including the purchase or sale of foreign exchange or of
contracts for foreign exchange or in the event that the Custodian
or its nominee shall incur or be assessed any taxes, charges,
expenses, assessments, claims or liabilities in connection with
the performance of this Contract, except such as may arise from
its or its nominee's own negligent action, negligent failure to
act or willful misconduct, any property at any time held for the
account of the Fund shall be security therefor and should the Fund
fail to repay the Custodian promptly, the Custodian shall be
entitled to utilize available cash and to dispose of the Fund's
assets to the extent necessary to obtain reimbursement.
14. Effective Period, Termination and Amendment. This Contract shall
become effective as of its execution, shall continue in full force
and effect until terminated as hereinafter provided, may be
amended at any time by mutual agreement of the parties hereto and
may be terminated by either party by an instrument in writing
delivered or mailed, postage prepaid to the other party, such
termination to take effect
37
<PAGE>
not sooner than thirty (30) days after the date of such delivery
or mailing; provided, however that the Custodian shall not with
respect to the Fund act under Section 2.10 hereof in the absence
of receipt of an initial certificate of the Secretary or an
Assistant Secretary that the Board of Trustees of the Fund has
approved the initial use of a particular Securities System by such
Fund and the receipt of an annual certificate of the Secretary or
an Assistant Secretary that the Board of Trustees has reviewed the
use by such Fund of such Securities System, as required in each
case by Rule 17f-4 under the Investment Company Act of 1940, as
amended and that the Custodian shall not with respect to a Fund
act under Section 2.10A hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary
that the Board of Trustees has approved the initial use of the
Direct Paper System by such Fund and the receipt of an annual
certificate of the Secretary or an Assistant Secretary that the
Board of Trustees has reviewed the use by such Fund of the Direct
Paper System; provided further, however, that the Fund shall not
amend or terminate this Contract in contravention of any
applicable federal or state regulations, or any provision of the
Declaration of Trust, and further provided, that the Fund may at
any time by action of its Board of Trustees (i) substitute another
bank or trust company for the Custodian by giving notice as
38
<PAGE>
described above to the Custodian, or (ii) immediately terminate
this Contract in the event of the appointment of a conservator or
receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an
appropriate regulatory agency or court of competent jurisdiction.
Upon termination of the Contract, the Fund shall pay to the
Custodian such compensation as may be due as of the date of such
termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements.
15. Successor Custodian. If a successor custodian for the Fund shall
be appointed by the Board of Trustees of the Fund, the Custodian
shall, upon termination, deliver to such successor custodian at
the office of the Custodian, duly endorsed and in the form for
transfer, all securities of the Fund then held by it hereunder and
shall transfer to an account of the successor custodian all of the
securities of the Fund held in a Securities System.
If no such successor custodian shall be appointed, the Custodian
shall, in like manner, upon receipt of a certified copy of a vote
of the Board of Trustees of the Fund, deliver at the office of
the Custodian and transfer such securities, funds and other
properties in accordance with such vote.
In the event that no written order designating a successor
custodian or certified copy of a vote of the
39
<PAGE>
Board of Trustees shall have been delivered to the Custodian on or
before the date when such termination shall become effective, then
the Custodian shall have the right to deliver to a bank or trust
company, which is a "bank" as defined in the Investment Company
Act of 1940, doing business in Boston, Massachusetts, of its own
selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than
$50,000,000, all securities, funds and other properties held by
the Custodian on behalf of the Fund and all instruments held by
the Custodian relative thereto and all other property held by it
under this Contract on behalf of the Fund and to transfer to an
account of such successor custodian all of the securities of the
Fund held in any Securities System. Thereafter, such bank or trust
company shall be the successor of the Custodian under this
Contract.
In the event that securities, funds and other properties
remain in the possession of the Custodian after the date of
termination hereof owing to failure of the Fund to procure the
certified copy of the vote referred to or of the Board of Trustees
to appoint a successor custodian, the Custodian shall be entitled
to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other
properties and the provisions of this Contract relating to the
duties
40
<PAGE>
and obligations of the Custodian shall remain in full force and
effect.
16. Interpretive and Additional Provisions. In connection with the
operation of this Contract, the Custodian and the Fund, may from
time to time agree on such provisions interpretive of or in
addition to the provisions of this Contract as may in their joint
opinion be consistent with the general tenor of this Contract.
Any such interpretive or additional provisions shall be in a
writing signed by both parties and shall be annexed hereto,
provided that no such interpretive or additional provisions shall
contravene any applicable federal or state regulations or any
provision of the Declaration of Trust of the Fund. No interpretive
or additional provisions made as provided in the preceding
sentence shall be deemed to be an amendment of this Contract.
17. Massachusetts Law to Apply. This Contract shall be construed
and the provisions thereof interpreted under and in accordance
with laws of The Commonwealth of Massachusetts.
18. Prior Contracts. This Contract supersedes and terminates, as of
the date hereof, all prior contracts between the Fund and the
Custodian relating to the custody of the Fund's assets.
19. Shareholder Communications Election. Securities and Exchange
Commission Rule 14b-2 requires banks which hold
41
<PAGE>
securities for the account of customers to respond to requests by
issuers of securities for the names, addresses and holdings of
beneficial owners of securities of that issuer held by the bank
unless the beneficial owner has expressly objected to disclosure
of this information. In order to comply with the rule, the
Custodian need~ the Fund to indicate whether it authorizes the
Custodian to provide the Fund's name, address, and share position
to requesting companies whose securities the Fund owns. If the
Fund tells the Custodian "no", the Custodian will not provide this
information to requesting companies. If the Fund tells the
Custodian "yes" or does not check either "yes" or "no" below, the
Custodian is required by the rule to treat the Fund as consenting
to disclosure of this information for all securities owned by the
Fund or any funds or accounts established by the Fund. For the
Fund's protection, the Rule prohibits the requesting company from
using the Fund's name and address for any purpose other than
corporate communications. Please indicate below whether the Fund
consents or objects by checking one of the alternatives below.
YES [ ] The Custodian is authorized to release the Fund's name, address,
and share positions.
NO [X] The Custodian is not authorized to release the Fund's name,
address, and share positions.
20. Limitation of Liability
42
<PAGE>
The references herein to the Trustees of the Fund are to the
Trustees of the Fund as trustees and not individually or
personally. The obligations of the Fund entered into in the name
of or on behalf of the Fund by any of the Trustees are not made
individually but in their capacity as trustees and are not binding
on any of the trustees personally. All persons dealing with the
Fund must look solely to the assets of the Fund for the
enforcement of any claims against the Fund.
43
<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative an
its seal to be hereunder affixed as of the 16th day of July 1993.
THE DIVERSIFIED PORTFOLIO
By /s/ James B. Craver
James B. Craver
Treasurer
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
<PAGE>
AMENDMENT TO CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and The Diversified Portfolio (the "Fund").
WHEREAS, the Custodian and the Fund are parties to a custodian contract
dated July 16, 1993 (the "Custodian Contract");
WHEREAS, the Custodian and the Fund desire to amend the terms and
conditions Custodian Contract pursuant to which the custodian provides services
to the Fund;
NOW, THEREFORE, in consideration of the promises and covenants
contained herein, the Custodian and the Fund hereby agree as follows:
1. The existing Section 3.13 of the Custodian Contract shall be amended
and restated in its entirety to read as follows:
3.13 Tax Law.
(a) United States Taxes. The Custodian shall have no
responsibility or liability for any obligations now or
hereafter imposed on the Fund or the Custodian as custodian of
the Fund by the tax law of the United States of America or any
state or political subdivision thereof. The Custodian will be
responsible for informing the Fund of the income received by
the Fund which is United States source income and which is not
United States source income.
(b) Claiming for Exemption or Refund under the Tax Laws of
Non-United States Jurisdictions. The sole responsibility of
the Custodian with regard to the tax laws of non-United States
jurisdictions shall be to identify the income of the Fund
which has been subject to withholding and other tax
assessments or other governmental charges by such
jurisdictions and the amount thereof and to use reasonable
efforts to assist the Fund or its investors with respect to
any claim for exemption or refund of such charges that can be
made on behalf of the Fund or its investors.
2. The existing Article 8 of the Custodian Contract shall be amended and
restated in its entirety to read as follows:
8. Duties of Custodian with Respect to the Books of Account and
Calculation of Net Income. The Custodian shall keep the books
of account of the Fund and shall perform the following duties
as described in Part A of its Registration Statement under the
1940 Act and in accordance with written procedures as may be
agreed upon by the Fund and the Custodian from time to time:
<PAGE>
(a) record general ledger entries;
(b) calculate daily net income;
(c) reconcile activity to the trial balance;
(d) calculate book capital account balances;
(e) calculate and provide to the Fund the daily net asset
value of the Fund and the SEC yield of the Fund and
the allocation of its various components to investors
of the Fund;
(f) prepare capital allocation reports in accordance with
Regulation 1.704-3(e)(3) (special aggregation rule
for securities partnerships) under the U.S. Internal
Revenue Code, based upon tax adjustments supplied by
the Fund; and
(g) prepare account balances.
The Custodian shall advise the Fund daily of the total amounts
of such net income, including the categorization of such net
income by source. The calculation of the Fund's net income and
its components shall include, but may not be limited to,
accounting for purchases and sales of portfolio securities,
calculation of realized and unrealized gains and losses,
accruals of income on portfolio investments, expense accruals
and calculations of market value of portfolio securities.
3. Except as specifically superseded or modified herein, the terms and
provisions of the Custodian contract shall continue to apply with full force and
effect.
IN WITNESS WHEREOF, each of the parties has caused this amendment to be
executed as a sealed instrument in its name and behalf by its duly authorized
representative as of this first day of July, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
Name: Ronald E. Logue
Title: Executive Vice President
THE DIVERSIFIED PORTFOLIO
By: /s/ Matthew Healey
Matthew Healey, Chairman and
Chief Executive Officer
JPM507
<PAGE>
INTERPRETATIVE PROVISIONS REGARDING CUSTODIAN CONTRACT
Agreement made by and between State Street Bank and Trust Company (the
"Custodian") and The Diversified Portfolio (the "Fund")
The Custodian and the Fund are parties to a custodian contract dated
July 16, 1993 (the "Custodian Contract"). As contemplated by Article 16 of the
Custodian Contract, the Custodian and the Fund desire to agree upon provisions
interpretative of the provisions of the Custodian Contract. ACCORDINGLY, the
Custodian and the Fund agree to the following provision interpretative of the
provisions of the Custodian Contract:
The Custodian and the Fund shall adopt written procedures as shall be
agreed upon from time to time regarding the books of account,
allocations for book and tax purposes and calculation of net income in
accordance with Article 8 of the Custodian Contract.
This Agreement shall not supersede or amend the terms of the Custodian
Contract which shall continue to apply with full force and effect.
Each of the parties has caused this agreement to be executed in its
name and behalf by its duly authorized representative as of this first day of
July, 1996.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Ronald E. Logue
Name: Ronald E. Logue
Title: Executive Vice President
THE DIVERSIFIED PORTFOLIO
By: /s/ Matthew Healey
Matthew Healey, Chairman and
Chief Executive Officer
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
between
THE PORTFOLIOS NAMED HEREIN
and
STATE STREET BANK AND TRUST COMPANY
JPM259A1
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<PAGE>
TABLE OF CONTENTS
Page
Article 1 Terms of Appointment; Duties of the Bank 1
Article 2 Fees and Expenses 3
Article 3 Representations and Warranties of the Bank 4
Article 4 Representations and Warranties of
the Portfolio(s) 5
Article 5 Data Access and Proprietary Information 5
Article 6 Indemnification 8
Article 7 Standard of Care 11
Article 8 Covenants of the Portfolios and the Bank 11
Article 9 Termination of Agreement 13
Article 10 Additional Parties to Agreement 14
Article 11 Assignment 14
Article 12 Amendment 15
Article 13 Massachusetts Law to Apply 15
Article 14 Merger of Agreement 15
Article 15 Limitations of Liability of the Trustees
and the Investors 15
Article 16 Counterparts 16
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<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the 23rd day of December, 1992, by and between
each of the New York trusts executing this Agreement on the signature pages
hereto or becoming a party to this Agreement subsequent to the date hereof as
provided in Article 10 (each a "Portfolio"), and STATE STREET BANK AND TRUST
COMPANY, a Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, each Portfolio's assets are composed of money and property
contributed thereto by the holders of interests in the Portfolio ("Interest(s)")
entitled to ownership rights in the Portfolio ("Investors");
WHEREAS, each Portfolio desires to appoint the Bank as its transfer
agent and agent in connection with certain other activities, and the Bank
desires to accept such appointment;
WHEREAS, additional Portfolios may become subject to this Agreement in
accordance with Article 10; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article 1 Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in this
Agreement, each Portfolio hereby employs and appoints the Bank to act as, and
the Bank agrees to act, as its transfer agent for the authorized Interests.
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
1.02 The Bank agrees that it will perform the following
services:
(a) In accordance with procedures established from time to
time by agreement between the Portfolios and the Bank, the Bank shall:
(i) Receive orders for the purchase of
Interests and promptly deliver payment and
appropriate documentation thereof to the custodian of
the applicable Portfolio authorized pursuant to the
Declaration of Trust of the Portfolio (the
"Custodian");
(ii) Pursuant to purchase orders, hold each
Interest in the appropriate Investor account;
(iii) Receive requests for purchases and
withdrawals and directions associated therewith and
deliver the appropriate documentation thereof to the
Custodian;
(iv) At the appropriate time as and when it
receives monies paid to it by the Custodian with
respect to any withdrawal, pay over or cause to be
paid over in the appropriate manner such monies as
instructed by the withdrawing Investor; and
(v) Maintain records of account for and
advise the Portfolios and their respective Investors
as to the foregoing; and
(vi) Record the Interest of each Investor
and maintain pursuant to SEC Rule 17Ad-lO(e) a record
of the
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<PAGE>
total number and value of Interests which have been
established, based upon data provided to it by the
applicable Portfolio.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall perform the
customary services of a transfer agent, including but not limited to:
maintaining all Investor accounts and withholding taxes, as applicable, on
non-resident alien Investors.
(c) Procedures as to who shall provide certain of these
services in Article 1 may be established from time to time by agreement between
the Portfolios and the Bank per the attached service responsibility schedule.
The Bank may at times perform only a portion of these services and the
Portfolios or their agents may perform these services on the Portfolios' behalf.
Article 2 Fees and Expenses
2.01 For performance by the Bank pursuant to this Agreement,
each Portfolio agrees to pay the Bank an annual fee as agreed to from time to
time by the Bank and the Portfolios. Such fees and out-of-pocket expenses and
advances identified under Section 2.02 below may be changed from time to time
subject to mutual written agreement between the Portfolios and the Bank.
2.02 In addition to the fee paid under Section 2.01 above,
each Portfolio agrees to reimburse the Bank for out-of-pocket expenses,
including but not limited to confirmation production, postage, forms, telephone,
microfilm, microfiche,
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<PAGE>
tabulating information statements and/or proxies, records storage or advances
incurred by the Bank. In addition, any other expenses incurred by the Bank at
the request or with the consent of a Portfolio, will be reimbursed by such
Portfolio.
2.03 Each Portfolio agrees to pay all fees and reimbursable
expenses promptly following the receipt of the respective billing notice.
Procedures applicable to advance payment by the Portfolios to the Bank of
postage for mailing information statements and/or proxies, reports and other
mailings to Investor accounts may be established from time to time by agreement
between the Portfolios and the Bank.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to each Portfolio that:
3.01 It is a trust company duly organized and existing and in
good standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter
and By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations under
this Agreement.
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<PAGE>
Article 4 Representations and Warranties of the Portfolio(s)
Each Portfolio represents and warrants to the Bank that:
4.01 It is a common law trust duly organized and existing
under the laws of the State of New York.
4.02 It is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of
Trust and By-Laws have been taken to authorize it to enter into and perform this
Agreement.
4.04 It is an open - end management investment company
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
Article 5 Data Access and Proprietary Information
5.01 Each Portfolio acknowledges that the data bases, computer
programs, screen format, report formats, interactive design techniques, and
documentation manuals (collectively, "Proprietary Information") furnished to the
Portfolio by the Bank as part of the Portfolio's ability to access certain
Portfolio-related data ("Customer Data") maintained by the Bank on data bases
under the control and ownership of the Bank or other third party ("Data Access
Services") constitute copyrighted, trade secret, or other proprietary
information of substantial value to the Bank or other third party. In no event
shall Proprietary Information be deemed Customer Data. Each Portfolio agrees to
treat all Proprietary Information as proprietary to the Bank and further
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I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
agrees that it shall not divulge any Proprietary Information to any person or
organization except as may be provided hereunder. Without limiting the
foregoing, each Portfolio agrees for itself and its employees and agents:
(a) to access Customer Data solely from
locations as may be designated in writing by the Bank
and solely in accordance with the Bank's applicable
user documentation;
(b) to refrain from copying or duplicating
in any way the Proprietary Information;
(c) to refrain from obtaining unauthorized
access to any portion of the Proprietary Information,
and if such access is inadvertently obtained, to
inform in a timely manner of such fact and dispose of
such information in accordance with the Bank's
instructions;
(d) to refrain from causing or allowing
third-party data required hereunder from being
retransmitted to any other computer facility or other
location, except with the prior written consent of
the Bank;
(e) that the Portfolio shall have access
only to those authorized transactions agreed upon
by the parties;
(f) to honor all reasonable written
requests made by the Bank to protect at the Bank's
expense the rights of the Bank in Proprietary
Information at
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<PAGE>
common law, under federal copyright law and under
other federal or state law.
Each party shall take reasonable efforts to advise its
employees of their obligations pursuant to this Article 5. The obligations of
this Article shall survive any earlier termination of this Agreement.
5.02 If a Portfolio notifies the Bank that any of the Data
Access Services do not operate in material compliance with the most recently
issued user documentation for such services, the Bank shall use its best efforts
to promptly correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for the
contents of such data and each Portfolio agrees to make no claim against the
Bank arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER PROGRAMS
AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS
IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT
THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
5.03 If the transactions available to the Portfolios include
the ability to originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or (ii) transmit Investor information or
other information (such transactions are known as "Customer Originated
Electronic Financial Instructions" or "COEFI"), then in such event the Bank
shall be
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I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
entitled to rely on the validity and authenticity of such instruction without
undertaking any further inquiry as long as such instruction is undertaken in
conformity with security procedures established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and each Portfolio
shall indemnify and hold the Bank harmless from and against, any and all losses,
damages, costs, charges, reasonable counsel fees, payments, expenses and
liability arising out of or attributable to any claim, demand, action or suit in
connection with:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions are
taken in good faith and without negligence or willful misconduct.
(b) The Portfolio's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Portfolio hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Portfolio or any other person or firm
on behalf of the Portfolio.
(d) The reliance on, or the carrying out by the Bank or its
agents or subcontractors of any instructions or requests of the Portfolio.
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I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
(e) The offer or sale of Interests in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any state that such Interests be registered in such state
or in violation of any stop order or other determination or ruling by any
federal agency or any state with respect to the offer of Interests in such
state.
6.02 The Bank shall indemnify and hold each Portfolio harmless
from and against any and all losses, damages, costs, charges, reasonable counsel
fees, payments, expenses and liability arising out of or attributable to any
action or failure or omission to act by the Bank as a result of the Bank's lack
of good faith, negligence or willful misconduct.
6.03 At any time the Bank may apply to any officer of a
Portfolio for instructions, and may consult with legal counsel with respect to
any matter arising in connection with the services to be performed by the Bank
under this Agreement, and the Bank and its agents or subcontractors shall not be
liable and shall be indemnified by the applicable Portfolio for any action taken
or omitted by it in reliance upon such instructions or upon the opinion of such
counsel. The Bank, its agents and subcontractors shall be protected and
indemnified in acting upon any paper or document furnished by or on behalf of a
Portfolio, reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar
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<PAGE>
means authorized by the Portfolio, and shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from
the Portfolio. The Bank, its agents and subcontractors shall also be protected
and indemnified in recognizing stock certificates which are reasonably believed
to bear the proper manual or facsimile signatures of the officers of a
Portfolio, and the proper countersignature of any former transfer agent or
former registrar, or of a co-transfer agent or co-registrar.
6.04 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God, strikes,
equipment or transmission failure or damage reasonably beyond its control, or
other causes reasonably beyond its control, such party shall not be liable for
damages to the other for any damages resulting from such failure to perform or
otherwise from such causes, provided that the Bank shall use its best efforts to
minimize the likelihood of all damage, loss of data, delays and errors resulting
from uncontrollable events, and if such damage, loss of data, delays or errors
occur, the Bank shall use its best efforts to mitigate the effects of such
occurrence.
6.05 Neither party to this Agreement shall be liable to the
other party for consequential damages under any provision of this Agreement or
for any consequential damages arising out of any act or failure to act
hereunder.
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I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
6.06 In order that the indemnification provisions contained in
this Article 6 shall apply, upon the assertion of a claim for which either party
may be required to indemnify the other, the party seeking indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent. Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and agrees
to use its best efforts within reasonable limits to insure the accuracy of all
services performed under this Agreement, but assumes no responsibility and shall
not be liable for loss or damage due to errors unless said errors are caused by
its negligence, bad faith, or willful misconduct or that of its employees.
Article 8 Covenants of the Portfolios and the Bank
8.01 Each of the Portfolios shall promptly furnish to the Bank
the following:
(a) A certified copy of the resolution of the Trustees of the
Portfolio authorizing the appointment of the Bank and the execution and delivery
of this Agreement.
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<PAGE>
(b) A copy of the Declaration of Trust and By-Laws of the
Portfolio and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain
facilities and procedures reasonably acceptable to the Portfolios for safe-
keeping of stock certificates, check forms and facsimile signature imprinting
devices, if any, and for the preparation or use, and for keeping account of,
such certificates, forms and devices. The forms and documents used for a
Portfolio or its Investors shall be acceptable to the Portfolio.
8.03 The Bank shall keep records relating to the services to
be performed hereunder, in the form and manner as it may deem advisable and as
may be reasonably acceptable to the Portfolios. To the extent required by
Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees that all
such records prepared or maintained by the Bank relating to the services to be
performed by the Bank hereunder are the property of the Portfolios and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered promptly to each Portfolio on and in accordance
with its request.
8.04 The Bank and the Portfolios agree that all books,
records, information and data pertaining to the business of the other party
which are exchanged or received pursuant to the negotiation or the carrying out
of this Agreement shall remain confidential, and shall not be voluntarily
disclosed to any other person, except as may be required by law. Notice shall be
given to the other party a reasonable time in advance of any such
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<PAGE>
disclosure. In addition, in the case of any request or demand for the inspection
of the Investor records of a Portfolio, the Bank will notify the Portfolio
promptly of receipt of such request or demand and request instructions from an
authorized officer of the Portfolio as to such inspection. The Portfolio will
within two business days furnish instructions to the Bank. Pending receipt of
such instructions, the Bank will not disclose such Investor records and upon
receipt the Bank will abide by such instructions. Notwithstanding any other
provision of this Agreement, in the event that (a) the Portfolio instructs the
Bank not to disclose such Investor records and the Bank has furnished the
Portfolio with an opinion of counsel that the Bank may be held liable for the
failure to disclose such Investor records, the Portfolio will indemnify the Bank
for any such liability, or (b) the Bank discloses such Investor records without
proper instructions from the Portfolio, the Bank shall indemnify and hold the
Portfolio harmless from and against any and all losses, damages, costs, charges,
reasonable counsel fees, payments, expenses and liability arising out of or
attributable to such disclosure. The provision of Section 6.06 shall govern such
indemnification. Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party upon one
hundred twenty (120) days written notice to the other.
9.02 Should a Portfolio exercise its right to terminate,
all out-of-pocket expenses associated with the movement of records and material
will be borne by the Portfolio. Additionally, the
-13-
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<PAGE>
Bank reserves the right to charge for any other reasonable expenses associated
with such termination.
Article 10 Additional Parties to Agreement
10.01 In the event that the Board of Trustees of the
Portfolio(s) organizes one or more separate New York trusts in addition to the
Portfolio executing this Agreement on the date hereof with respect to which it
desires to have the Bank render services as transfer agent under the terms
hereof, the Bank shall be so notified in writing by the officers of such trust,
and if the Bank agrees in writing to provide such services, such trust shall
become a party to this Agreement and shall be referred to as a Portfolio
hereunder. Article 11 Assignment
11.01 Except as provided in Section 11.03 below, neither this
Agreement nor any rights or obligations hereunder may be assigned by either
party without the written consent of the other party.
11.02 This Agreement shall inure to the benefit of and be
binding upon the parties and their respective permitted successors and assigns.
11.03 The Bank may, without further consent on the part of any
Portfolio, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered as
a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange Act of
1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly
-14-
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS
affiliate; provided, however, that the Bank shall be as fully responsible to
the Portfolio for the acts and omissions of any subcontractor as it is for its
own acts and omissions.
Article 12 Amendment
12.01 This Agreement may be amended or modified by a written
agreement executed by both parties and authorized or approved by a resolution of
the Trustees of the Portfolio(s).
Article 13 Massachusetts Law to Apply
13.01 This Agreement shall be construed and the provisions
thereof interpreted under and in accordance with the laws of the Commonwealth
of Massachusetts.
Article 14 Merger of Agreement
14.01 This Agreement constitutes the entire agreement between
the parties hereto and supersedes any prior agreement with respect to the
subject matter hereof whether oral or written.
Article 15 Limitations of Liability of the Trustees and the Investors
15.01 A copy of the Declaration of Trust of each Portfolio is
on file at the principal business address of the Portfolio, and notice is hereby
given that this instrument is executed on behalf of the Trustees of the
Portfolio(s) as Trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or Investors individually
but are binding only upon the assets and property of the Portfolio(s).
-15-
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
Article 16 Counterparts
16.01 This Agreement may be executed by the parties hereto on
any number of counterparts, and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in their names and on their behalf by and through their
duly authorized officers, as of the day and year first above written.
THE TREASURY MONEY MARKET PORTFOLIO
BY: /s/ James B. Craver
Secretary and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
Executive Vice President
-16-
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<PAGE>
STATE STREET BANK AND TRUST COMPANY
SERVICE RESPONSIBILITIES*
Responsibility
Service Performed Bank Portfolio
1. Receives orders for the purchase of Interests. X
2. Hold Interests in Investor Accounts. X
3. Receive requests for withdrawals. X
4. Effect transactions 1-3 above directly
with broker-dealers. N/A
5. Pay over monies to withdrawing investors. X
6. Effect transfers of Interests. N/A
7. Prepare and transmit distributions. N/A
8. Issue Replacement Certificates. N/A
9. Reporting of abandoned property. N/A
10. Maintain records of account. X
11. Maintain and keep a current and accurate
control book for each issue of securities. X
12. Mail information statements and/or proxies. X
13. Mail Investor reports. X
14. Mail offering documents to prospective Investors. X
15. Withhold taxes on non-resident alien accounts. X
16. Prepare and file U.S. Treasury Department forms. X
17. Prepare and mail account and confirmation
statements for Investors. X
-17-
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
Responsibility
Service Performed Bank Portfolio
18. Provide Investor account information. X
19. Blue sky reporting. X
* Such services are more fully described in Article 1.02 (a), (b) and (c) of
the Agreement.
THE TREASURY MONEY MARKET PORTFOLIO
BY: /s/ James B. Craver
James B. Craver
Secretary and Treasurer
STATE STREET BANK AND TRUST COMPANY
BY: /s/ Ronald E. Logue
Executive Vice President
-18-
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
February 1, 1993
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 0[2]171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Treasury Money Market
Portfolio has organized the following ten additional New York trusts:
The Money Market Portfolio The Selected U.S. Equity Portfolio
The Tax Exempt Money Market Portfolio The U.S. Stock Portfolio
The Short Term Bond Portfolio The U.S. Small Company Portfolio
The U.S. Fixed Income Portfolio The Non-U.S. Equity Portfolio
The Tax Exempt Bond Portfolio The Diversified Portfolio
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 between The Treasury Money
Market Portfolio and State Street Bank and Trust Company, each of the ten
Portfolios hereby requests that you act as Transfer Agent of the Portfolio under
the terms of the agreement.
Please indicate your acceptance of the foregoing by executing two copies of this
letter agreement, returning one to the Portfolios and retaining one copy for
your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK PORTFOLIO
THE U.S. SMALL COMPANY PORTFOLIO
THE NON-U.S. EQUITY PORTFOLIO
THE DIVERSIFIED PORTFOLIO
By /s/ Cheri J. Baumann
Assistant Treasurer
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
State Street Bank and Trust Company
February 1, 1993
Page 2
Agreed to this 2nd day of February,
1993
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
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<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
September 27, 1993
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 0[2]171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees of The Treasury Money Market
Portfolio has organized the following two additional New York trusts:
The Emerging Markets Equity Portfolio The Non-U.S. Fixed Income Portfolio
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 between The Treasury Money
Market Portfolio and State Street Bank and Trust Company as amended, each of the
two Portfolios hereby requests that you act as Transfer Agent of the Portfolio
under the terms of the agreement.
Please indicate your acceptance of the foregoing by executing two copies of this
letter agreement, returning one to the Portfolios and retaining one copy for
your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK PORTFOLIO
THE U.S. SMALL COMPANY PORTFOLIO
THE NON-U.S. EQUITY PORTFOLIO
THE DIVERSIFIED PORTFOLIO
THE EMERGING MARKETS EQUITY PORTFOLIO
THE NON-U.S. FIXED INCOME PORTFOLIO
By /s/ Cheri J. Baumann
Assistant Treasurer
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
State Street Bank and Trust Company
September 27, 1993
Page 2
Agreed to this 27th day of September,
1993
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
The New York Total Return Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
March 10, 1994
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees [of] has organized the
following additional New York trust: The New York Total Return Bond Portfolio
(the "Trust").
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 as amended between the
other Portfolios referenced above and State Street Bank and Trust Company, the
Trust hereby requests that you act as its Transfer Agent under the terms of the
agreement.
Please indicate your acceptance of the foregoing by executing the four originals
of this letter agreement, returning two the Portfolios and the Trust and
retaining two for your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK PORTFOLIO
THE U.S. SMALL COMPANY PORTFOLIO
THE NON-U.S. EQUITY PORTFOLIO
THE DIVERSIFIED PORTFOLIO
THE EMERGING MARKETS EQUITY PORTFOLIO
THE NON-U.S. FIXED INCOME PORTFOLIO
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
By /s/ Laura R. Young
Assistant Treasurer
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
State Street Bank and Trust Company
March 10, 1994
Page 2
Agreed to this 10th day of March,
1994
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
The Treasury Money Market Portfolio
The Tax Exempt Money Market Portfolio
The Tax Exempt Bond Portfolio
The New York Total Return Bond Portfolio
6 St. James Avenue
Boston, Massachusetts 02116
(617) 423-0800
The Money Market Portfolio
The U.S. Fixed Income Portfolio
The Selected U.S. Equity Portfolio
The U.S. Small Company Portfolio
The Non-U.S. Equity Portfolio
The Short Term Bond Portfolio
The U.S. Stock Portfolio
The Diversified Portfolio
The Emerging Markets Equity Portfolio
The Non-U.S. Fixed Income Portfolio
The Series Portfolio
P.O. Box 268, George Town
Grand Cayman, Cayman Islands, BWI
(809) 945-1824
July 8, 1994
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Ladies and Gentlemen:
Re: Transfer Agency and Service Agreement
This is to advise you that the Board of Trustees has organized the following
additional New York trust: The Series Portfolio (the "Trust") (the Trust is
comprised initially of three separate and distinct investment portfolios--The
Asia Growth Portfolio, The European Equity Portfolio and The Japan Equity
Portfolio (each a "Series")).
In accordance with Article 10 (Additional Parties to Agreement) of the Transfer
Agency and Service Agreement dated December 23, 1992 as amended between the
other Portfolios referenced above and State Street Bank and Trust Company, the
Trust hereby requests that you act as Transfer Agent for each Series under the
terms of the agreement.
Please indicate your acceptance of the foregoing by executing the four originals
of this letter agreement, returning two the Portfolios and the Trust and
retaining two for your records.
Very truly yours,
THE TREASURY MONEY MARKET PORTFOLIO
THE MONEY MARKET PORTFOLIO
THE TAX EXEMPT MONEY MARKET PORTFOLIO
THE SHORT TERM BOND PORTFOLIO
THE U.S. FIXED INCOME PORTFOLIO
THE TAX EXEMPT BOND PORTFOLIO
THE SELECTED U.S. EQUITY PORTFOLIO
THE U.S. STOCK PORTFOLIO
THE U.S. SMALL COMPANY PORTFOLIO
THE NON-U.S. EQUITY PORTFOLIO
THE DIVERSIFIED PORTFOLIO
THE EMERGING MARKETS EQUITY PORTFOLIO
THE NON-U.S. FIXED INCOME PORTFOLIO
THE NEW YORK TOTAL RETURN BOND PORTFOLIO
THE SERIES PORTFOLIO
By /s/ Laura R. Young
Assistant Treasurer
I:\dsfndlgl\dp\port\amend6.txt
<PAGE>
State Street Bank and Trust Company
July 8, 1994
Page 2
Agreed to this 8th day of July,
1994
STATE STREET BANK AND TRUST COMPANY
By /s/ Ronald E. Logue
Executive Vice President
I:\dsfndlgl\dp\port\amend6.txt
The JPM Institutional Funds
6 St. James Avenue, 9th Floor
Boston, Massachusetts 02116
(617) 423-0800
June 30, 1993
The Diversified Portfolio
Elizabethan Square, 2nd Floor
P.O.Box 268
George Town, Grand Cayman, BWI
Ladies and Gentlemen:
With respect to our purchase from you, for the account of The JPM
Institutional Diversified Fund, (an "Initial Interest"), at the purchase price
of $100,000 of an initial beneficial interest in The Diversified Portfolio (the
"Portfolio"), we hereby advise you that we are purchasing such Initial Interest
for investment purposes without any present intention of withdrawing or
reselling.
The amount paid by the Portfolio on any decrease or withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any unamortized
organization expenses, determined by the proportion of the amount of such
Initial Interest withdrawn to the aggregate Initial Interests of all holders of
similar Initial Interests then outstanding after taking into account any prior
withdrawals of any such Initial Interest.
Very truly yours,
THE JPM INSTITUTIONAL FUNDS
/s/ James B. Craver
James B. Craver
Secretary and Treasurer
<PAGE>
June 30, 1993
The Diversified Portfolio
Elizabethan Square, 2nd Floor
P.O.Box 268
George Town, Grand Cayman, BWI
Ladies and Gentlemen:
With respect to our purchase from you, at the purchase price of $100
of an initial beneficial interest (an "Initial Interest") in The Diversified
Portfolio (the "Portfolio"), we hereby advise you that we are purchasing such
Initial Interest for investment purposes without any present intention of
withdrawing or reselling.
The amount paid by the Portfolio on any decrease or withdrawal by us of any
portion of such Initial Interest will be reduced by a portion of any unamortized
organization expenses, determined by the proportion of the amount of such
Initial Interest withdrawn to the aggregate Initial Interests of all holders of
similar Initial Interests then outstanding after taking into account any prior
withdrawals of any such Initial Interest.
Very truly yours,
SIGNATURE FINANCIAL GROUP, INC.
/s/ Linwood C. Downs
Linwood C. Downs
Treasurer (Director of Finance
and Administration)
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial data extracted from the annual report
dated June 30, 1997 for the Diversified Portfolio and is qualified in its
entirety by reference to such annual report.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 254837
<INVESTMENTS-AT-VALUE> 303962
<RECEIVABLES> 7571
<ASSETS-OTHER> 2676
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 314209
<PAYABLE-FOR-SECURITIES> 5867
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 704
<TOTAL-LIABILITIES> 6571
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 307638
<DIVIDEND-INCOME> 3419
<INTEREST-INCOME> 8121
<OTHER-INCOME> 0
<EXPENSES-NET> 1893
<NET-INVESTMENT-INCOME> 9647
<REALIZED-GAINS-CURRENT> 20442
<APPREC-INCREASE-CURRENT> 26949
<NET-CHANGE-FROM-OPS> 57038
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1592
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2327
<AVERAGE-NET-ASSETS> 289789
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
